Talking Hydrogen

Gabelli Funds

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Gabelli Funds
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Portfolio Manager, Research Analyst

Summary

As the global race to net-zero becomes ever more important, the significant role that hydrogen will likely play in the global energy economy becomes ever more clear. The pending US Infrastructure Investment and Jobs Act targets a substantial expansion to the U.S. Energy Department’s current hydrogen program. The Bill outlines steps to improve hydrogen technology and facilitate a hydrogen economy. The US efforts trail that of the European Union’s outlined June 2020 strategy where its set a target to install 6-gigawatts (GW’s) of hydrogen electrolysers (one million tons of hydrogen from renewables) by 2024 and then 40 GW for 10 million tons by 2030.

Hydrogen is the most abundant chemical element in the universe and gaseous hydrogen can be used as a clean alternative to methane or natural gas (1). It can also be transported through the existing gas infrastructure network and used for various industrial uses, including road, air and shipping transportation.  Vast amounts of hydrogen atoms are contained in water and present in most living things but it is scarcely available as a gas. However, hydrogen gas can be produced from a variety of resources, including natural gas, nuclear power, and renewable power. The “colors of hydrogen” are as follows:

  • GREEN HYDROGEN – produced from renewable energy (solar or wind) to power electrolysers. Electrolysis creates a reaction to split water into its components of hydrogen and oxygen, emitting zero-carbon dioxide in the process. Green hydrogen currently makes up a small percentage of today’s overall hydrogen production because it is expensive.
  • YELLOW HYDROGEN – produced from nuclear-powered electrolysis (also called pink, purple or red).
  • BLUE HYDROGEN – produced mainly from natural gas through steam reforming, a process which brings together natural gas and heated water in the form of steam. The carbon dioxide by-product is captured through carbon capture and storage (CCS). Blue hydrogen is called ‘low-carbon hydrogen’
  • GREY HYDROGEN – produced from natural gas, or methane, using steam methane reformation but without capturing the carbon and other GHG emissions.
  • BLACK/BROWN HYDROGEN – Using black coal or lignite (brown coal).

Exhibit 1  Hydrogen – Significant Role in a “Net-Zero Environment”

Hydrogen - Significant Role in a “Net-Zero Environment”

Source: The Mercury.com

For hydrogen to be a viable alternative to methane, it has to be produced economically and in scale. In addition, the current gas infrastructure network needs to be modified and adapted. The infrastructure bill updates a program outlined in the Energy Policy Act of 2005 during a previous hydrogen development cycle that was swept aside by the US “fracking boom”. The bill directs the DOE and the U.S. Environmental Protection Agency to develop a carbon intensity standard for all forms of hydrogen production. “Clean hydrogen,” defined as a kilogram of hydrogen that cannot yield more than 2 kilograms of carbon dioxide-equivalent GHG emission during production. The bill supports production from renewable energy resources, nuclear energy and fossil fuels when paired with carbon capture technology.

The bill allocates $8 billion over five years for the DOE to develop at least four clean hydrogen hubs, a network of regional suppliers and consumers, and the infrastructure necessary to connect them. The hubs would help the DOE achieve its clean energy production standard and demonstrate hydrogen production, processing, delivery, storage and end use. The bill also allocates $1 billion for a program to improve and reduce the costs of electrolysis to less than $2 per kilogram by 2026 and allocates $500 million over four years to fund multiyear grants for hydrogen research and development.

The global hydrogen trend is in its infancy, but is being rapidly adopted by several major global equipment and industrial suppliers, including Mitsubishi, Siemens AG, Cummins, ABB, Air Products, Linde PLC, Air Liquid, as well as most large electric and gas utilities and other developers. Several U.S. natural gas-hydrogen hybrid power projects are underway, such as the Intermountain Power Agency’s planned conversion of a 840-MW combined cycle gas plant to run on 30% hydrogen by 2025 (eventually 100% hydrogen) and output sold to the Los Angeles Department of Water Power.  A list of pure play hydrogen players is listed in table 1.

Table 1  Hydrogen Players Performance

Hydrogen Players Performance

Source: Thomson One, Gabelli Funds

(1) Sources below:

https://www.eia.gov/energyexplained/hydrogen/

https://afdc.energy.gov/fuels/hydrogen_basics.html

Originally Posted on August 17, 2021 – Talking Hydrogen

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This whitepaper was prepared by Timothy Winter, CFA The examples cited herein are based on public information and we make no representations regarding their accuracy or usefulness as precedent. The Research Analyst’s views are subject to change at any time based on market and other conditions. The information in this report represent the opinions of the individual Research Analyst’s as of the date hereof and is not intended to be a forecast of future events, a guarantee of future results, or investments advice. The views expressed may differ from other Research Analyst or of the Firm as a whole.

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