[00:00:02.950] - Jon
You. Hello and welcome to the episode. Today we're looking at hydrogen. Interest and activity in hydrogen is gathering pace fast. And whatever your views on hydrogen, we're going to see a lot of green hydrogen in the next years and decades. And to see that, we're going to need a lot of electrolysers to produce this hydrogen. Today I'm talking with Graham Cooley, CEO at ITM Power, one of the world's leading manufacturers of electrolyser, together with our in-house hydrogen expert here at Delta-EE, Rob Bloom. Let's say hello first, Graham. Hello and welcome to the podcast.
[00:00:42.010] - Graham
Morning Jon, and thanks very much for having me.
[00:00:46.070] - Jon
Graham, you've been CEO of ITM Power for 13 years now. I don't know if that's flown by or feels like a lifetime. I suspect for many of those years you had to tell people who ITM Power was and what you did. Now many more people will know you now, but for the people that don't, can you give a brief introduction to ITM Power?
[00:01:07.790] - Graham
Sure. So, ITM is an electrolyser manufacturer. We manufacture PEM electrolysis equipment, and we do that from our gigafactory in Sheffield, Bessemer Park. So we have a manufacturing capacity of 1GW per annum, but our emphasis is on scaling the manufacturing of PEM electrolysis equipment.
[00:01:35.580] - Jon
And you're selling the electrolysers all over Europe? All over the world? Any particular geographies or markets?
[00:01:43.310] - Graham
Yeah, so we currently have a backlog of over 700MW equipment, and we sell that all over the world. We work very closely with Linde Engineering who are our our EPC partner. So Linde looked at scaling the deployment and we look at scaling the manufacturing of the modules. So we have a global footprint by virtue of the fact that we have a joint venture with Linde Engineering called ITM Linde Electrolysis. And of course, Linde has 30% market share of industrial grey hydrogen.
[00:02:27.780] - Jon
Right. So you make them, and Linde will install it and design it and do the engineering around that to provide the installation to the customer around the world.
[00:02:38.150] - Graham
Absolutely, that's correct. And we've worked with Linde now for about two and a half years on large scale deployment. And our emphasis is on using green hydrogen to replace grey industrial hydrogen, which by its nature are very large electrolysers. So we're looking at electrolysis equipment from 20, 100MW, that sort of size range.
[00:03:07.010] - Jon
Okay. Can you give our listeners a feel for how quickly you're growing? And there might be different metrics you want to use? Head count, order book, fundraising, I don't know. What's the best thing to describe it? Your growth?
[00:03:20.750] - Graham
Yeah, why don't we try all of those things? When I started, there were about 30 people in the company, and soon we expanded to 60 in 2020, moving to 2021, we increased from 200 up to over 300 staff, and we're now at 400. So a very rapid increase in the acquisition of skills over the last two years, we moved from an order book which was extremely low in the single digits of megawatts to a backlog of 755 MW, which was announced very recently. And manufacturing capacity, we moved from 100 MW over the last two years to 1 GW in size. And every year we deploy an electrolyser that goes up in scale by an order of magnitude. So if you go back six years ago, 100 kw, then two years later a megawatt, then two years after that, 10 MW. Now we're looking at the point 100 MW at the Rhineland refinery with shell. So it's rapid growth, particularly over the last couple of years.
[00:04:52.690] - Jon
So you definitely don't know the names of all your colleagues at ITM power anymore.
[00:04:56.690] - Graham
Graham yeah, it's very interesting that actually from a kind of cultural point of view, but I used to know everyone and the names of all of their kids and how old, and I'm not in that position right now, but we have a fantastic team of incredibly enthusiastic people.
[00:05:21.110] - Jon
Okay, thanks very much, Graham. Let's say hello to come back shortly. But say hello to our second guest, Rob Bloom. Hello, Rob.
[00:05:28.390] - Rob
Morning, both. Lovely to join you both this morning.
[00:05:33.510] - Jon
Rob, can you contextualise for our listeners a bit the scale of the green hydrogen sector today? Graham talked about ITM Power, but if you look at the overall sector, can you give us some context, either in megawatts gigawatts or comparisons to how much grey hydrogen there is being produced every year in the world?
[00:05:54.090] - Rob
Yeah, I think it's a really good place to start, actually, because I think it highlights and builds on what Graham was saying there about the rate of change we're seeing. So if you were to look at the EU and UK hydrogen markets as they exist today, it's basically all grey hydrogen. So high carbon hydrogen derived from methane. If you look at the UK and EU, it's around 10 million tonnes a year, somewhere in that kind of ballpark. So if you were to convert all of this to electrolysis, and those electrolysers were working 24 hours a day, seven days a week, you'd need somewhere in the region of 50 to 60 gigawatts of electrolysers to replace that current demand. If you look at where green hydrogen is today, though, we're really still in the low hundreds of megawatts in terms of electrolyser being used specifically for sort of decarbonisation, parking, kind of slightly niche industrial uses like chlor-alkali today. So we're talking orders of magnitude from where we are today to where we need to be to replace fossil hydrogen.
[00:07:03.060] - Jon
So there's a lot to do to replace that fossil hydrogen, as well as producing new hydrogen, for want of a better word, that might soak up excess wind power and then do either use that for industrial purposes or put that back into power into the gas grid or whatever. So a huge challenge just to replace that grey hydrogen?
[00:07:25.010] - Rob
Yeah, I mean, huge challenge just for that grey hydrogen. And then like you said you've got things like sectors like steel, aviation, shipping, long range heavy goods vehicles, trains. There's a huge amount of new applications. But like Graham said earlier, I think for me in the industry, maybe, it's interesting to get your thoughts here, graham, the emphasis should really be on getting rid of that grey hydrogen we're using today, first as kind of a key sort of demand sector.
[00:07:53.790] - Graham
Yeah, Rob, I absolutely agree with that. And that is the market that we directed to initially. So I agree with your numbers as well. The world uses 70 million tonnes and the EU is now called by 2030, so in the next eight years to have 20 million tonnes produced in the EU. This was announced in the Repower EU energy Security package. So that 20 million tonnes is somewhere around 150 to 200 gigawatts of electrolysis equipment. And the entry market, as you say, is replacing grey hydrogen, which is made using natural gas, which is used for two main areas. One is refining and the other is the production of ammonia. And we've seen a massive increase in the cost of natural gas in Europe, and that has had a direct impact on the cost of ammonia because of the increase in the cost of industrial hydrogen. And ammonia, as I'm sure you all know, is an incredibly important commodity because it's the derivation of all fertilisers fixing nitrogen from the air. Using industrial hydrogen makes ammonia, and from that you get urea, UAN and ammonium nitrate. And actually, when you look at the increase in the cost of natural gas, it's not only an energy crisis, but it's a food crisis for that reason.
[00:09:46.590] - Jon
Graham, I'm interested in picking up a bit more because the ammonia industry, though the refinery sector, has been used to using grey hydrogen for a long time. So you, Linde, whoever comes along with electrolyser and says, hey, we can do this with green hydrogen. Now, so far, I may be generalising a bit here. There's been pilots and demonstrations in the, with green hydrogen. How quickly do you think the market will move, or what will it take to move that market from grey to green? And one of those things will be natural gas prices. But will that alone do it, or how hard is that market going to be to shift?
[00:10:35.610] - Graham
Yeah, it's a great question. So, Jon, we have had an increase in the gas price. I mean, if you look in the UK today, you're seeing gas prices that are over 200 pence per therm in a market where gas prices have been stable for years at around 30 pence. So you're looking at a very significant increase. That's the key driving force. Another driving force is the volatility of the price of natural gas, because it's shooting up and down right now. And actually, it's very difficult to plan a business with a high volatility feedstock and you have renewable power that's come down in price. And if you connect an electrolyser using a power purchase agreement to renewable power, you get zero volatility as well as having price parity, as well as having energy security, as well as having energy storage for your renewable power. And also you get net zero avoiding a carbon price. So all the arrows are in the right direction for hydrogen, but your question is, what does adoption take? Is it just about those things or is it about something else? And there needs to be an investable business model with a positive rate of return.
[00:12:05.430] - Graham
That is investable - bankable projects. Bankable projects require long duration policy and they require an incentive. So why do they require an incentive if we got cost parity?
[00:12:24.570] - Jon
That was what I was going to say. With all those arrows pointing in the right direction that you talked about, is there still a big gap that an incentive needs to fill or is that gap a time limited gap while you scale up and bring the cost down?
[00:12:40.650] - Graham
So this is exactly my point, Jon. How do you design an incentive for green hydrogen when it's actually in the money? And this is the question. It's only in the money right now because of the price of natural gas and the price of renewable power. Will that be the case in the medium term? And is the current natural gas price an investable proposition or is there risking it changing? Okay, this is the thing that needs to be squared.
[00:13:19.430] - Jon
So it might not be bankable because you're basically taking a bet on the future natural gas price, correct? Yes. Rob, how do you see that when you're looking at projects and talking with people in the market about whether it's refineries or other sectors? How close is hydrogen to being a market rather than a commercial market rather than a pilot and demonstration market?
[00:13:47.070] - Rob
Yeah, I think that's a really good question, Jon. If you were to look at kind of the activity today, as far as I know, kind of one of the biggest electrolysers working in Europe today specifically for green hydrogen decarbonisation is kind of the first phase of that refinery project that you've got REFHYNE. As far as I'm aware. Graham, about 10 MW. Now another of ITM's projects, this is a coincidence, I haven't just listed all of ITM's.
[00:14:15.490] - Jon
Other manufacturers are available.
[00:14:17.240] - Rob
Yeah, exactly. Is the 24 megawatt electrolyser at the Leune chemical plant near Leipzig in Germany as well. So we're talking relatively small, especially when you think of a current grey hydrogen plant today is putting out roughly 150,000 tonnes of hydrogen a year. Those green hydrogen plants, the electrolysers - 24 MW if it's running at full capacity, full scale, is about 4000 tonnes a year. So we're still a couple of orders of magnitude out. And I think what Graham is saying here, he's basically ticked all the points I had written down in my notes that I made for today. Is that case of I think what the market is really crying out for is a long term incentive that can help de-risk some of these larger projects in the hundreds of megawatts, easing up to those larger amounts. And we're starting to see that in the UK we've got the low carbon hydrogen business model, which is essentially a contract for difference on hydrogen production. The Netherlands has had a scheme called the SDE++, which has kind of tried to incentivize running electrolysis as well. But I think Graham makes a really great point.
[00:15:31.590] - Rob
If natural gas prices stay this high, maybe those things aren't required. It's just a very big if. So I think we're in a difficult part now. Some people call it, I can't remember exactly what it's called, but technology development, you reach a trough of a difficulty in scaling up, you can attract money to do the pilots and the demos and we know it's going to make sense in sort of five or ten years, but we're stuck in that point where you need a bit of a push to really get these things scaled up. So, yeah, we're in a tricky position. A tricky position, I think, at the moment.
[00:16:08.490] - Graham
So, July August, we will see the publication of the hydrogen business model from the UK government. We will see a set of schemes coming forwards and funding. This incentive won't be specific, so you will not see a pounds per kilogramme incentive. What you will have is an opportunity to bid into a CFD scheme and at that point those companies wgo are going to buy electrolytes equipment that will assess the risks and ask for a specific incentive, a green hydrogen CFD. And that will be the first full hydrogen business model that is published. And at that point, customers of electrolysis equipment, those who want to generate green hydrogen, will make project specific applications for a contract for difference between the price of natural gas and green hydrogen.
[00:17:26.430] - Jon
They're getting a hedge Graham on the volatility of natural gas in the future, or that they're eliminating that risk around that uncertainty of the natural gas price that you mentioned earlier.
[00:17:36.430] - Graham
That's exactly right. And some big schemes then will come forwards in the UK. I'm delighted to see that. So that's the first thing. Second thing is that the other use of hydrogen, which is the use in transport, the RTFO, that's a renewable transport fuels obligation and the certificates associated with that, you will have an option of either bidding your green hydrogen into the hydrogen business model or into the RTFO scheme. So I think what we will see actually is some leadership from the UK government emerging July August, and that will be very welcome.
[00:18:26.010] - Jon
Is that global leadership, Graham, or what other countries would you highlight that are similar level to what the UK is talking about?
[00:18:36.330] - Graham
So in Europe we had a target in 2020 of 80 gigawatts of electrolysis equipment by 2030. So that's in the next eight years, 40 gigawatts deployed in Europe and 40 gigawatts of imported green hydrogen. Repower EU now up that to 200 gigawatts. I'll make a simple observation here, Jon, which is that we haven't even begun to deploy the electrolysers to meet the 2020 target and it's two years old. What is needed to get to FID - final investment decision? The whole of Europe needs FIDs for green hydrogen projects. And the reason we haven't had them is that the important projects of common interest, which is where all the big companies have lined up to deploy green hydrogen, those haven't gone through the process of being agreed.
[00:19:44.190] - Jon
Okay
[00:19:44.590] - Graham
The policy is now holding up industry, not the other way around.
[00:19:52.470] - Jon
Graham, how hard is it for you to scale ITM while you're waiting or influencing or lobbying for those policies? So the market is developing at a certain rate, you've grown at a certain rate. You talked about your order book earlier. How difficult is it to keep the investment flowing into your growth and have the confidence that the market will come and develop at the right pace? Is that challenging or is that manageable?
[00:20:26.250] - Graham
So I think it's very manageable now because in October we raised £250,000,000 with a plan to get to five gigawatts per annum of manufacturing capacity by the end of 2024.
[00:20:41.250] - Jon
Okay
[00:20:41.700] - Graham
Now, we already had resources of over £100 million, so we've got about £380,000,000 of cash resources on our balance sheet to take us through. We clearly need demand and we need FIDs for the projects that we have been working on, but we have a backlog which keeps us busy and we are ready to expand as those FIDs come through.
[00:21:14.500] - Jon
So you've got a pretty good runway then. Keep you going until they come through. Okay, we're getting to that time in the podcast now where we bring out the talking new energy crystal ball. And I'd like each of you to paint a picture of the green hydrogen sector in 2030 in Europe, which we've done a bit already, but maybe add a bit of colour to numbers that have been that we've talked about, but more importantly, the biggest challenge, and let's say other than policy, because we've talked about policy. So the biggest challenge in terms of reaching that 2030 vision. So, Graham, do you want to go first in terms of that vision and the biggest challenge other than policy.
[00:22:05.370] - Graham
So, the IEA report says the world needs 3500 gigawatts of electrolysis in the next 28 years to get to net zero to get to net zero by 2015. It's a massive amount of electrolysis equipment, I think, from 2022 to 2030 to 2030. So the next eight years is going to define that journey. And I think that there will be only a few electrolyser manufacturers with the resources and the capacity to achieve that. And I'm absolutely sure that ITM Power will be one of them. We will see gigawatt scale projects in 2030, on a regular basis, you need a gigawatt of electrolysis to decarbonise a refinery or an ammonia production. So by 2030 they will be standard electrolyser projects. I also think that by 2030 we will have deployed a very significant amount of renewable power. And what will be a key role of green hydrogen, not only decarbonising hydrogen for industry, but also for energy storage. Because without green hydrogen in 2030, you will see very significant amounts of renewables curtailment.
[00:23:40.650] - Jon
Yeah, well, I think analysis by our company we're now part of LCP, shows that in the UK, renewables will be curtailed for over half of the year by 2030. So we definitely need storage of which hydrogen can be a part. Will we still be working through the refineries in Europe, Graham? Or will we have moved beyond the refineries? Or will we see in parallel other sectors developing with refineries by 2030?
[00:24:07.290] - Graham
So Renewable Energy Directive says that all refineries need to make 14% of their products renewably by 2030. 14% is again, a lot of electrolysis. I mean, you are talking about around 100 gigawatts just for that. And ammonia production as well will be absolutely key. My view is that energy clearly trying to achieve the net zero targets will be significant, but food security is going to be a massive issue in 2030. So ammonia gets higher and higher on the agenda as we approach 2030.
[00:24:59.450] - Jon
And briefly, biggest challenge, apart from policy?
[00:25:06.850] - Graham
Challenge, is responding to the demand. Right scale manufacturing capacity and responding to the demand.
[00:25:15.130] - Jon
Yeah. And is that a function of raising? Is that a function just of time and money?
[00:25:21.430] - Graham
It's a function of a number of different things. Backing from the city about you have to be the world leading electrolyser module, cost, performance, lifetime, all of those things as well. It's technology driven and it's cost driven. The technology is modular and because it's modular, it's scalable in terms of manufacture and also scalable in terms of deployment because we work with the world leader in deploying hydrogen assets. So I feel very confident that we can rise to the challenge.
[00:26:02.290] - Jon
Okay, thanks Graham. Rob, 2030 vision and challenges apart from policy. You've got a challenge now of adding to what Graham said as well.
[00:26:13.320] - Rob
I know, right. Going second is always the more difficult one, isn't it? I think for me, one thing that's never really talked about when you talk about fossil hydrogen is byproduct hydrogen. So there's a huge amount of hydrogen that is produced as a result of processes in refineries. So I'm not going to go and say we shouldn't be using fossil hydrogen at all in 2030 because a lot of these processes are very well integrated. But I'd like to see the on purpose - so a grey hydrogen plant being used expressly for hydrogen production, I'd love that to be a thing of the past by 2030. That's I think what we should all be trying to do. Whether it happens, I think it depends on all that regulation, so I won't get too much into that. But that's what I'd love to see, the on purpose grey hydrogen plant, a thing of the past.
[00:27:02.610] - Jon
And challenge for that, apart from policy.
[00:27:05.530] - Rob
I think for me, one of the biggest ones is going to be developing hydrogen pipeline infrastructure. I think it's an absolutely key asset in the hydrogen value chain in terms of connecting supply and demand and doing that in the most financially efficient way possible. But we've got a huge way to go on that in terms of connecting those supply and demand areas and thinking about how regulated assets like that might work.
[00:27:31.290] - Jon
So that's Rob thinking about industrial clusters, because in some ways, if it's at a refinery and you're producing it at the refinery, you don't need the pipeline. But is it the pipelines when you've got a cluster and you've got a grouping of refineries or ammonia plant or refinery or other industry that can use the hydrogen?
[00:27:49.150] - Rob
I think it's a case of connecting where you can produce the hydrogen with where you can use it. So a very UK centred example is lots of wind power in Scotland, but lots of demand down in England. Similar thing in Germany. Lots of wind power in the north of Germany, lots of demand in the south of Germany. What's the best way to get it there? Is it using the electricity system or is it using pipelines? Pipelines tend to be cheaper, so for me, that's really the causes. Where can you produce it most cheaply and how can you get it to where it needs to be? For me, that pipelines.
[00:28:23.150] - Jon
Okay, another new challenge. Time is getting the better of us, so we better leave the discussion there. But it's clearly, I think a lot of people in the energy sector have hydrogen is a relatively new topic and there's lots of talk about hydrogen in lots of different sectors. But the discussion today, we're focused very much on refineries and ammonia production and huge amount of work needed to displace that grey hydrogen that's being used there. And without that, we can all think of exciting new uses of hydrogen, which I'm sure will come. But we've got to get rid of that grey hydrogen refinery and ammonia plants first. Graham, thank you so much for joining and sharing your thoughts.
[00:29:10.430] - Graham
You're very welcome. Thank you. One last point for me would be this. We've talked about an energy transition. Actually, it's an industrial revolution as well, and someone somewhere is going to manufacture trillions of pounds worth of equipment to make that energy transition. And actually, we should be making that equipment in the UK. So let's think of it as an industrial transition as well as an energy one.
[00:29:36.430] - Jon
Okay. Our listeners in different countries, Graham, will be backing their industry, but as you said, there's space in the market for at least a few to scale to really make the impact that we need. Rob, thanks for joining again
[00:29:40.540] - Rob
Yeah, thanks for having me again. It's always lovely to be on the podcast. Jon.
[00:29:42.540] - Jon
And, as always, thanks to everyone for listening and we look forward to welcoming you back next week. Thanks and goodbye.
