Hey everybody, welcome back to another episode of First Principles. I'm here with Simon Pickup,
who is the CEO of Terralta. They're a very cool company that
knows a lot and a lot more than almost anybody else about hydrogen. We're
going to talk about it. We'll get all into the details of his story and how he got there and what
they're actually doing and what they're supplying in just a second. But before
I do, I just wanted to highlight how cool it is that this video is happening at all.
The way that I found it was that my friend Andrew shared a post from Simon
on Twitter. And then after I clicked on the account and basically went to
Simon's profile, I saw this amazing video that he's created. We're actually, we're
playing it on the side right now. This is from Simon's Twitter page. So it
goes into his background and his story, which he's about to explain to us right here live.
But so you should go check out that video and go check out Teralta. But without
further ado, let's introduce you to the man himself. So here is Simon.
Thank you so much, Simon, for being on First Principles. Why don't you tell us who you
Yeah, well, first of all, thank you very much for having me on today. And thank you, Andrew, for
connecting us for this interview. So, yeah, a
little bit of background. I've been obsessed with hydrogen for my entire
life. I grew up in North Vancouver in British Columbia. And
this is back in a time where a company called
Ballard, which is the first major fuel cell company, was
started in Vancouver. And so, as a kid, I had an opportunity to spend time
around a lot of the early hydrogen companies. being
competitive and being a bit of a geek, I wanted to compete in science fairs. And
so I started building little hydrogen electrolyzers as
a kid and became increasingly passionate about the potential for
clean hydrogen and what it could do, not just for sustainability, but
I thought more broadly for energy economics. And
so, I ended up pursuing that. I ended up dropping out
of high school to start my first hydrogen venture. Newsflash, failure.
But the second one, spent
about a decade working on commercializing hydrogen co-combustion technology
to make existing semi-trucks run on hydrogen. And now today, I'm
the CEO at Teralta, where we build a utility-scale clean
Very cool. So let's let's get really concrete with what that means. So
basically, the way that I understand it is, there's someone out in the world
that needs hydrogen for something for like a chemical process
or for I don't know, you can tell us about the other reasons people need
it, but you they need it and you can find a way to get them it is
Definitely. We're the match between supply and demand is an
easy way to think of that. We can talk about
what the main uses of hydrogen are, but what Teralta does to make it super concrete
is that we make hydrogen simple. Our job is to actually deliver
clean hydrogen to an end customer for whatever that industrial application
So it's not, you don't have some fancy way to electrolyze hydrogen. You
don't have some like big, huge pipeline that you've built that you tap people into.
It's really just any way that you can think of to get people that
form of energy that they need that you, or that, you know, that raw
Well, we specifically build, so we're end-to-end,
we build the entire project, all the way from the production type, so
in some cases electrolysis, we'll do the production, then the cleanup, and
then actually we do build an actual pipeline, or in
alternative cases, we've looked at doing truck delivery, but the business today is really
about solving distribution by using either existing pipeline access,
or we will build a dedicated pipeline, like our first project
So you would do, you would build a, like a custom bespoke or
Yeah. So in, in we're specifically focused on a, on a
kind of industrial waste we call like stranded hydrogen assets. So these
will be groups that are, are producing hydrogen as a by-product. So
they'll have electrolyzer facility already in place, but
typically they're not monetizing the hydrogen. So we'll, we come in.
we will capture that gas, we'll purify the gas, and then
we will pressurize it and then distribute it typically directly
into a pipeline. But all of that CapEx and all of that project build is within the
So let's, let's talk about why are you interested in hydrogen? I
mean, I think like, it's not really something that nerd snipes
most high schoolers, but it appears it really did nerd snipe you. So I'm curious
Um, I just think that, you know, in some ways, um,
energy is like the ultimate lever, right? So increasing amounts
of low cost energy is really what drives GDP growth. I mean, obviously
when I was a kid, that wasn't the formulation I had in mind, but it just seemed to be
something that was like super important as a kid. But as time has gone
on, I've really come to believe that that is, in some sense, like the
big lever. And it's rare for us to find, you
know, entirely new ways of supplying clean energy. And
I wanted to spend, you know, I wanted to spend my time working on making
hydrogen a piece of that. Because its potential is that,
you know, if we want to get to full decarbonization, in some sense, there's
going to be as much renewable electricity as we can get, you know, nuclear, wind, solar, geothermal,
everything on that mix. But then it's going to go first into
batteries wherever possible. And then as you get into applications
that require more energy density, more storage, then you're going to look at increasing
amounts of hydrogen. And so it becomes this, it's not hydrogen versus electricity,
it's just maximize the electricity use, put it in the highest value
application, and then where you need to, you add hydrogen. And so that becomes the
basis for what eventually will become like a fully sustainable energy
Cool. And just to, I mean, this is like the dumbest question I've ever
Whereas, um, yeah, so it's, it's element number one, uh, you know, on
the periodic table, uh, it's, it makes, it's, it's like 90% of
the universe. So it's in everything. Uh, the challenge is really that
because it's bonded into everything, it costs, uh, you know, time
and energy and money to, to get it out, uh, and, and use it as a,
Totally. So can you talk about that? What are the normal ways that we capture hydrogen
Yeah. So today, globally,
it's about 100 million tons of hydrogen production. And
the majority of that hydrogen is actually made through a process called
steam methane reformation. So you're taking natural gas and
you're splitting out the CO2 and the hydrogen. you're capturing
that hydrogen and then it goes into a variety of applications. The
biggest uses of hydrogen currently are ammonia
production and then use in refining, so hydrocracking or
hydrogenation. So basically, input
for fertilizer for food, so absolutely critical, and then as an input
for the refining process as well. So those are the biggest ones,
but that's in some sense the the old
way of doing it. That's using natural
gas as a feedstock. What we're focused on is figuring out how to make increasing
amounts of clean hydrogen. So of course, we can get the carbon intensity down
Okay, awesome. So what is clean hydrogen then? So basically, dirty
hydrogen, quote unquote, would be you start with ammonia, which
is what an NH four, and then you break it into the you
get the hydrogen out of it. So you start with that you start with ammonia,
and then you end up or do you start with methane, usually start with methane?
Exactly. So yeah, so we start with methane. Got it. Exactly. And
so we measure the cleanliness of hydrogen using
a carbon intensity scale. So closer you get to zero, zero carbon. I'll
give you an example. Diesel is at like 80 to 90 grams
of carbon intensity, and then natural gas is somewhere underneath
that, around 60. And so So, starting with either,
I'll call it, fossil-based electricity production
or methane itself, you just automatically have a very
high carbon intensity for your hydrogen, and that's ultimately what you're
trying to avoid. So, the trick is, how do we
do large-scale clean hydrogen production? And typically,
the main approach is that you use
renewable electricity, so take like wind, solar, something like this, and
then you'll run it through an electrolyzer. So you split the water, you're now using
clean electricity, you split the water, now you've got clean hydrogen out.
But today, clean hydrogen is about 1% of
the global market for hydrogen. So, just
to give you a sense of how new that is. And
in some sense, that's the opportunity. It's like, there's already a $100 billion market.
You're trying to resegment it by getting the cost of clean hydrogen
Okay, that makes sense to me now. So if we're starting with something like
methane, which is CH4, not NH4, if
we want to get the hydrogen off, then we leave carbon afterwards. So we're splitting
it apart, and we're leaving carbon, which we don't like. Alternatively, we
can start with something like water, H2O, and when we
get the hydrogen off, our waste byproduct is oxygen, not
carbon. So, okay, that's what it means for it to be something like
clean hydrogen, is that the end product after you create it is something
Well, yeah, so there's no, I'll call it, dirty byproducts,
so just oxygen's fine. But then also just that the energy
used through that process was also clean. So starting with clean
electricity to do that electrolysis is critical. Even if you end up with oxygen,
but you used, I'll call it, a coal plant for the electricity, not
a great diesel generator. Yeah, a diesel generator, exactly. No,
but that's a serious thing, right? That happens a
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interesting. And just to just so people are grounded again, I think you
hinted at this before, like the importance of something like ammonia or
whatever in the world of how hydrogen products
have really made modern society. But I don't think people
really know about that. Do you end talking about like, you know, Haber Bosch
process, ammonia, fertilizer, that whole thing, and why it's so important for everything?
Yeah, absolutely. I'll definitely share this graph with you.
Basically, the Haber-Bosch process enabled lower-cost,
higher-volume agriculture in places which just
weren't as fertile. You could basically do this
Haber-Bosch process, create ammonia, and then use that as part of
the agricultural process. There's this amazing graph
which basically shows world output of food and
density of food production per square meter or something like this. And I
want to say it's like a 2 or a 3x. It is a massive shift
as a result of that process. And that's almost
half of the world's hydrogen production today goes into
ammonia production for fertilizer. And so that's
part of the double benefit of seeking to
produce lots more clean hydrogen. Because if that process,
we can decarbonize that entire process, we actually are going to end up also contributing
to much cleaner agriculture downstream from that.
Totally. And I, I, you, I think you showed me this, or
maybe I like just discovered it, but anyways, there's this concept called the hydrogen
ladder, which this guy came up with. And I think you actually, you might have some, you
might have some, uh, some beef or not beef, but like you might have some difference of
opinion about which applications of hydrogen are good versus what
this ladder says. But do you mind just introducing us to that concept of
Yeah, absolutely. So there's a guy
named Michael Lieberich. He's a founder, actually,
I think, of Bloomberg New Energy Finance. And he's come up
with what's called the hydrogen ladder. And it's basically a ranking of what
applications can hydrogen effectively compete
to substitute. So for instance, it's like, is hydrogen good for
transportation versus, say, diesel or gasoline? Or
is hydrogen good for powering an airplane versus, say,
jet fuel? And so he's got this ranking of it, and
broadly, you know, at the bottom, it's kind of like the worst possible uses for
hydrogen, and at the very top is like the best possible use of hydrogen, largely because
there's no alternative to using hydrogen. And so at the top of that
list, things like ammonia production, hydrocracking,
part of the refinery process, hydrogenation, those
are considered unavoidable, must-use hydrogen. So like automatically there's
a market. And then I you know his I think
the key thing that he's just trying to get at is that there's lots of substitutes For
for for say diesel or gasoline people talk about biofuels. Maybe
we should just use straight-up batteries, right and his His
I think the thing that I really strongly agree with about that approach is that it's
trying to puncture You know this this idea or this this bubble
thinking that like hydro will just replace everything It'll be like, oh, all
final end forms of energy are just going to go hydrogen. That's not
the case. Every single segment is going to fight based
on energy density, cost, all sorts of
these factors to figure out what's going to be best. Batteries are going to win in some segments.
Hydrogen is going to win in some segments. And so
there's a scale for how good or how bad hydrogen is for
Okay. That makes sense. So when you have that, you
see that list of use cases in your brain, I'm sure this list exists as
well in terms of, you know, the best possible uses of hydrogen and the
ones that are the furthest away, the ones you probably don't have to worry about for years
or decades, or maybe even ever. So just to make that concrete for your
business, do you mind talking a little bit about what those use cases are
Yeah, absolutely. So, you know, I say we're focused on
what we'll call utility scale and clean hydrogen. And
so the utility scale piece of that is a first distinction there. We're
talking about hydrogen in the dozens to hundreds of
tons per day of hydrogen production. To put that more
in scale is a lot of the focus in
hydrogen has been on transportation. So people will talk about, you know, hydrogen cars or
hydrogen trucks, things like this. Typical scale for,
say, a truck refueling station is like one to five tons per day.
And so that's, relatively speaking, quite small relative
to doing dozens or hundreds. And that's because you're
trying to serve heavy industrial users, say,
who use lots of natural gas, and displace that natural
gas use with hydrogen. And so that's the focus. These
are industrial users, steel production, pulp mills,
like any large scale natural gas use, primarily
either for heating or as an input, we will replace with clean
In my brain, this ladder makes a lot of sense because it kind of gives us
the usefulness of hydrogen versus alternatives. But
I think like intuitively, I want there to be another double click into that,
right? Like there should be some sort of mental model that we have,
or probably is in your brain, that tells us when hydrogen is useful and
when it's not. I mean, just like thinking about it, hydrogen
is extremely energy dense, but it's extremely like
Yeah, so am I talking about that? Like the difference between energy density,
Yeah, so happy to. So I mean, so hydrogen is extremely energy
dense on a mass basis. So like, it's, it's, you know, you know,
the amount of energy that you can stuff in a kilogram of hydrogen is is in
is super high. Actually, it's why
when people try to
work the rocket equation, why liquid hydrogen's at the top of
the list, it's because it has the highest specific impulse for rockets. It's
difficult to handle sometimes, and so people have chosen methane, of course, but
for that energy density, hydrogen's at the top of that list. The
challenge is that by volume, it's way less dense
than say diesel or even the natural gas. And so you
have to put a lot of energy into compress, if it's a gas, you've
got to put a lot of energy into compressing that hydrogen into a small
enough space that it can be practical. And that's been one of the, that's
been a technology challenge and has been, I'd say not fully
solved, but solved enough to be commercial today. And so if you use hydrogen
as a gas, They'll store it either in
very large scale, like in a giant cavern, or in small scale, like
a truck in a carbon fiber cylinder under a
lot of pressure. And how do they actually do that pressurization? Giant
compressors, lots more electricity. Yeah. And so different
techniques for doing it. Yeah. But different techniques for doing it, but it
can be relatively, if it's like a giant salt
cavern, which is the case for some of these utility scale projects, it
can be slower, lower pressure, big
volume. But if you're on a truck, then it's
a lot higher pressure and you use a lot more energy to basically stuff
it into these They store, typically on a truck, they store at
700 bar or 10,000 psi. It's not... Oh my
god. Yeah, exactly. Yeah, just take a good lick of scuba tank. It's way
Does that mean that people generally, if they can, want to use it
It really comes down to cost. To
come back to your question, what is the mental model for why you would use hydrogen?
I'd say the first level is, is there
a focus on reducing carbon intensity? If you don't There's
a lot of applications. If you do not care about the carbon intensity, there are
cheaper ways to get energy. You don't have to start
with coal. You can do that. But if you're going
down the decision tree and you're like, I need clean energy, you really start as, okay,
well, am I using clean electricity directly or can I not
use clean electricity directly now? I want some kind of energy storage
and really, in a sense, hydrogen is an energy storage medium.
First level of that is, okay, so if I want to use hydrogen and I want it to be clean, it
just comes down to, like, how do I get the lowest cost per
unit of that hydrogen? And hydrogen is typically measured, like, different pieces
of the industry will measure it differently, but one common way to do it is they measure it in kilos, because
a kilo of hydrogen is roughly equivalent to a gallon of
diesel. more or less. So if you're thinking,
oh, my diesel is $5 a gallon, and
I say, hey, we're going to get a kilo of hydrogen, it's $5. It's roughly comparable.
It's like 90% comparable. So rule of thumb, a
kilo of hydrogen. So it comes out like, what's the cost per kilo, which is the same thing as
what's my dollar per gallon. And Typically,
most of the time you're trying to get use of that hydrogen as
a gas because it'll increase the cost if you're accessing
liquid hydrogen. The only reason why people actually do liquefaction typically
is to increase the distribution range.
So like if you've got a hydrogen plant, I don't know, coast, right? And
the amount that you can store in a gas on a trailer is way, way, way
lower than as a liquid. So then you can justify that cost. But
Yeah, I guess the thing that's still not totally clicking for me is that I know that
hydrogen like per kilo is extremely, extremely
energetic. And so it kind of, it seems like it would be
cheaper. Like, why is it the case that is not cheaper just
Uh, it's, it's, so it's because the, um, so
let's look, there's this, there's a, there's a, there's
a thing in the industry where people use all these colors in hydrogen. So we, we,
we're not personally, we're trying to move away from the use of what we call the hydrogen rainbow
and just stick with carbon intensity. Right. So instead of... I've
never heard of that. I'm so intrigued. Okay. So let's talk about this. Yeah,
let's talk about this. So we'll come back to cost, but
let's start with the rainbow. So there's all these colors of hydrogen. So
people will say, oh, is it green hydrogen? Is it blue hydrogen? Is
it pink hydrogen? These are real things, by the way. And they're meant to
label certain kinds of hydrogen production. So
typically green hydrogen is renewable electricity going
into electrolyzers, and it's considered This is
the cleanest and the best, most sustainable. Then you've got blue
hydrogen, which is you're starting with a fossil feedstock, and
now you've got CO2 and hydrogen coming out, but you
can then capture or utilize or store the
CO2. in some economically viable
way. And then you net, net, you have a lower carbon
intensity. So like we had carbon, but we stored it. We had carbon and we did something,
you know, to sequester it. Great. Now we have clean hydrogen. The
challenge with colors is that, you know, it's not numeric. You know,
you can have pretty, you can have blue hydrogen with a carbon intensity of 20, and
you can have renewable hydrogen with a carbon intensity of 20. That's not the, you
know, that's not the, that's not helpful from a labeling perspective, but
nonetheless, people often will use these labels. And
so to come back to cost, renewable electricity typically
is more expensive than fossil electricity. Renewable prices
have definitely come down dramatically, but still, typically it's
more expensive. So if you start with pretty expensive electricity and
you electrolyze it, because electricity is 80% of the cost of
producing hydrogen out of electrolysis, you end up with pretty expensive
So to give you an example, if your power is
something like in the range of like 10 cents a kilowatt hour, you're
going to be looking at hydrogen production cost per kilo. That's already
above a gallon of diesel, for instance. And so that's been the challenge.
It's like, how do you both get the cost down and we get
the cleanliness? And we can get into why
that's possible now, but for a long time, that's why hydrogen has
remained I would say lots
of study, but it hasn't achieved the broad industry scale
Got it. Okay, so I have to ask the follow up then. Why is it
Why is it possible now? Well, first of all, the
incredible cost decline related to, say, solar
and wind, particularly for solar, that has
been the fundamental game changers that decades of investment, and
in particular, We can come to this as well, the development
of a financing model that used the investment tax credits
in the U.S. to drive that explosion of growth. That unlock
has actually created enough renewable energy capacity
and at prices now that it finally actually starts to
make sense to do large-scale electrolysis for hydrogen. That's one
piece of it. The second, I'll call it pillar, if you will, is
that carbon capture technology has matured to
the point where now it is possible to do, say, very large scale carbon
capture in a way that is both
scientifically sound and actually economically viable. And
then the third piece is that because of
those, I'll call it carbon and
renewable economics getting better, The scale of
the equipment production is helping drive CAPEX savings. So we're in
the beginning of a classic learning rate
improvement, cost decline curve as it relates to the production cost
of hydrogen. And that's what makes it super exciting now because all
of a sudden, industries which it would have been just cost prohibitive to
If I think about it at the holistic level, you
can think about it in terms of trends of cost, trends of technology creation,
that sort of thing. It seems like the cost of electricity and
the growth of renewables and solar deployments, those
are all trends that are moving remarkably in your favor. Is
there any other trend that you would highlight there as really important to
you know, the alignment around net zero is
real. I mean, so all of a sudden, the
effort of not just government, but large industry to figure
out how you actually get all the way to decarbonizing the hardest
stuff, concrete, steel, transportation, marine, aviation,
like these are like, these are in some sense, problems that were
supposed to come later. Like, we'll just focus on clean electricity, then we'll get to the
really hard stuff. We're now there. And so policy alignment, that's
definitely number one. And what that has spurred tactically is
that in countries all over the
world, they now have all these national hydrogen strategies. And then in different
countries, there's real incentives. And I think the thing that's
about to happen in the US is, if you think
back to like 2000, I want to say 2006, that was the beginning of the solar
investment tax credit. And there's a curve, you could just see it was like solar deployments,
like flat. And then you look at the next 15 years, and it's just this
insane curve. We're right at
the beginning of that, because in the Inflation Reduction Act
in the US, there is a policy called 45V,
and it's insane. So at
the limit, you can get up to $3 per kilo
of the hydrogen incentivized. Let's
just say that diesel competitive is $4 a
gallon. If I'm making it at $5 with
grid electricity, renewable electricity, and I get $3 off, now
there's room for margin, room for distribution, and now you can compete head-on
against fossil fuels. That is an absolute game-changer.
If it's anything like the renewable wave, you're going to see lots more hydrogen
companies. It's going to be intense. And that's to
the tune of billions a year. Yeah. And the subsidy level is
huge. We're talking tens of billions a year. There's
a large utility company in the U.S. next year, probably the largest renewable one.
They alone have a commitment that's nearing $16 billion of direct investment, just
based off of that credit. Oh my gosh. Wow.
Yeah. You're starting to get to, okay, this
Knowing that and knowing about the, you know, the supply chain, how we're creating this,
like, I think that let's hop and talk a little bit more detailed about the use
cases. So one use case that comes up all the time
is transportation, like using hydrogen literally as a fuel for,
for anything for trains or planes or cars or, or what
have you. Um, do you mind talking more about how you feel about hydrogen
Yeah, definitely. And I think it's the one that maybe
is the most part of almost the popular imagination, if
you will. It's the question we always get the most, like, so
when are the hydrogen cars coming? And I actually have a slightly different personal view
of this. I mean, I think, candidly, everything
underneath of a long-haul truck is largely going to be electrified.
I mean, the Model 3 is an amazing vehicle, and the Model 3 and the
competitors are going to own that segment. you know, just on a just on an
energy efficiency basis. I mean, it's it's just more efficient to take renewable electricity,
put it directly in a battery with that kind of performance package already at that scale.
There was a shot maybe, you know,
20 years ago, where it where the the The
scale of investment wasn't where it was today. Maybe there was a competitive opportunity
there, but I think that ship has sailed for light-duty vehicles. Above
a light-duty vehicle, as you get to a long-haul truck, there's going
to be a little bit of competition. The advantage
of using hydrogen in that case is that it's much quicker to charge. You
can solve some of the weight issue. And the
other side is that in certain applications, you can actually make it fully dual fuel. There's
a lot of commercial factors that make it difficult for large
fleets to just switch over to run on a pure hydrogen, say,
a fuel cell truck, or even a pure battery electric truck. Not
only are you switching over something that actually drives revenue
for you and you can't take technology risk, the other thing is that the
infrastructure support is a whole other order of magnitude in
order to support it. It's like a supercharger for
a semi-truck is a serious amount more power.
A few hundred of those trucks, all of a sudden you need a substation in
that area, and the grid is already having capacity constraints. So
that's a whole other challenge. And so I think above that truck
level, as you get to marine and as you get
to planes, there's increasing opportunity to use hydrogen
Interesting. That's kind of counterintuitive that a plane would be easier to
supply with a fuel cell than a car would. Like just, just logically, it's like, oh,
we have to carry it off the ground and it has to be fully lifted versus it
Which is a perfect segue for why synthetic fuels matters. Actually.
So that's the key. So that's actually perfect.
So that's, so that's what we're focused on is, is hydrogen and hydrogen derivatives
because, um, The one thing that we haven't talked
about is, so far, we've only been talking about just pure hydrogen use, right? So it's
like, we're going to take this hydrogen, we're going to put it right in a fuel cell and turn it into
electricity or something like this. The other, I think, less often
talked about piece is using hydrogen as an input for
synthetic fuels. And that is the key, ultimately,
to doing, I'd say, large-scale use
of hydrogen for heating, large-scale use of hydrogen for aviation.
Actually, funny enough, this process, the Sabaccio process,
where you take CO2 and you recombine it
with hydrogen, that's ultimately what's going to be required, say,
for green methane for Starship. So funny enough, it's
kind of like... It's
enormously more hydrogen use, it's just now in the form
of some kind of a derivative. And that's the key, because
one of the challenges that even if tomorrow we
waved a magic wand and we said, okay, we're going to make hundreds of millions of
tons of clean hydrogen, The challenges that the distribution infrastructure
require to support pure hydrogen use just doesn't exist today. In
Texas, and the Gulf Coast, there's a couple
thousand miles of hydrogen pipelines, but that's fractional compared to,
say, the natural gas pipeline system. And so if there's a
way that you can leverage the existing gas
transportation networks, the existing port infrastructure, the existing airport
infrastructure, you're just going to have a much faster path to scale and
ultimately to decarbonization. And so that's the, I
would say that's the, like the new new in
hydrogen is getting the cost of hydro production down such
that you can use it as input for synthetic fuels. And that those are exactly the
kind of projects that we're, we're building today in Canada and starting to develop
The reason why that's like sort of confusing to me is because I know
that the way that most hydrogen is made is like the
opposite of the Sabatier reaction. It's literally the opposite, right?
Where it's like, you're taking methane and
turning it into hydrogen, and then you're taking the hydrogen and just putting it right back into methane, and
then you're like setting it up. Like, no way. Like that's, that's why clean hydrogen
would like sort of make more logical sense, I guess, because at least we're not starting with
Yeah, it's funny. So that reforming process, exactly.
So take the methane, split it, and this way it's like, just reverse it. Now we'll
do CO2 plus hydrogen. But the trick is that this
time, instead of emitting out more CO2,
the trick is that you can capture CO2. And so now all of a
sudden, You know, there's dozens of companies who are working to,
you know, point source capture of CO2. There's a whole, there's like a whole tech tree
worth of carbon capture, but nonetheless, you capture it from some other process.
You're mitigating, you know, avoiding it, avoiding it, getting into that sphere. You're
then recombining it with hydrogen, and then you've got effectively a
synthetic natural gas. That's just one application. There'll be, you know, e-fuels for
air, you know, e-fuel version for, for air aviation.
They call it synthetic aviation fuel SAF. But nonetheless, the
derivatives is, the derivatives is not
just creating backwards compatibility, which
will solve or largely solve, I think, distribution challenges. The
other thing is it's allowing large scale hydrogen financing, which
I think is another sort of under discussed piece of
that is that the commercial models for building these large projects
are largely adapted from renewable energy. And it's
projects that have very serious long-term demand,
often because it's a synthetic fuel, that underpins the financing.
And without that, you can't get to the next level
of scale. So yeah, it's totally solved distribution, enables
large, you know, enables a certain kind of financing so you can scale it. And
that's, yeah, that's why we're super excited about it. Solves a lot
of the challenges for large-scale hydrogen use and gives
I know that the financing is something that you guys do and that you personally I
think care a lot about. So I definitely want to poke there. Tell me
more about like this financing of how a normal hydrogen project will be financed today.
Maybe like what are you guys do that's different or better
Sure, yeah, so in
our space, you're always trying to match
supply and demand, right? And so supply contractually gets called feedstock, demand
contractually gets called offtake, but offtake runs the game. And
I think the
first pass of, like, should we use hydrogen? It comes down to,
like, ultimately, it's what's the cost of that hydrogen? The cost
of that hydrogen determines what end market you could sell it into. Basically, like,
if you can make it competitive with diesel, you could sell it into transportation. If you can
make it competitive against natural gas, you could sell it in for heating. But
that's, like, the iron law is that, you know,
for large-scale energy use, it
not being economically competitive means there is no offtake for
it. I mean, unless there's a subsidy or an incentive to
cover it. It's very difficult to get a massive industrial user for
whom their energy bill is some significant portion of
their cost to be like, hey, we're going to increase that by 50%. They're like,
no, actually, we'll just keep doing what we're doing. And it sounds so
obvious, but it's often
overlooked. It's sort of assumed that the hydrogen economics will work out, but it's actually a very difficult problem.
How do you get enough offtake driven by the right economics?
And so coming back to synthetic fuels, now you've got, if
you can make a synthetic fuel economic
against whatever the fossil alternative is, let's just take natural gas for
an example. Now, you could have a long-term commitment
from an off-ticker to say they'll buy a hydrogen,
say, under a 10 or a 20-year agreement. That allows you to
have enough demand to then go back and justify the capex
or the capital required for all of the hardware. And so, this is what
they call, this is typical project finance structuring, but it's been difficult to
apply project financing to hydrogen projects
because largely the unit economics just haven't worked. And so now,
finally, because of those three pillars and the market development and
the demand side coming together, now you can actually pull that into
workable large-scale projects. So to give you an example, we're
working on a project where we're going to be creating synthetic natural gas. And
because we've got a group that's willing to buy, again, long-term
quantity of hydrogen out, we can then justify the CapEx required. And so
a project like that's about 130 million
Canadian, which is roughly 100 million US of CapEx. And
so it's difficult to finance those with equity raises. You
want to get a bank involved in that. And that little
piece has been where so many... That's
been this, I'd say, gap in the market from like, I call it
equity finance technology plays and then large scale actual
infrastructure development. And that little key is, does the offtake work?
Can we apply project financing? And I think it's like a hidden
but super valuable thing is that the business model innovation has
mattered almost as much as some of
What does an off-take agreement look like concretely? Does it
say, at this price, this amount, we will buy from
Yeah, exactly. It's literally like, how much are you
going to buy? It's volume, it's time of term,
how long is this contract going to be? What's the pricing mechanism? And
then a whole bunch of conditions around making sure that those, how are
you going to split capital? What's the time, when's the product going to
go online? What representations are you going to make about the quality of
the company? But the main thing, like the economic drivers, like how
much for how long at what price? And
those are always the key factor in the
And that's part of, they will agree, a buyer of liquid
natural gas or something will agree to pay some
amount of capex to help build the plant or whatever that's producing it?
Not always. Typically, it's that they're providing their
off-take agreement. I'll just make it super concrete. If someone says,
I'm going to buy, I don't know, 100 tons a day
of hydrogen at X price, let's just say that contract is worth maybe a billion over
10 years. So, you know that you've got contractually locked
in a billion of revenue, and then you can go back to either
your equity groups or the banks and say, look, there's going to be a billion for revenue. We've
got to invest, say, a hundred million. And they're going to say, okay, well, the banks will typically
do up to 80% of that cost. So, the bank will lend
you 80 million, and then you've got to go find 20 million of equity. For that
equity component, there may be... your
customer may want to invest in the project, but it's not automatic.
That's a separate, you know, do you also want to invest? It's a different, different
piece of it. But that's, it's, it's,
it's, you know, like, the highest in some
ways, like the highest multiple companies are always the ones with the strongest recurring revenue. But that's what makes
the energy deals so crazy in a way is because like, you get huge
long term contracts that are like, it's
almost like the step It's like a step improvement because it
takes a long time to put these contracts together. It can be quarters to
years, but all of a sudden, the value jump
is insane just on one. A hundred million dollars, yeah. Yeah, exactly. Just off
of one of these projects. So they're mega and cool, but
I imagine that just to make it personal, I imagine that makes it sort of hard for
you as a business because each of your projects is so mega. It's like the
sales cycles must be long and it must be hard to kind of
like, you know, I don't know, to ride that super like
Well, that's actually what's driven us to focus
on vertically integrating all of these pieces. So the thing about Seralta is
that it's not just, so we do, so we'll source
hydrogen or produce hydrogen. We will do all of the contracting for
it. We will put together the financing. It's end to end. The thing that
we've also added on is we have a strategic relationship with
a large equipment manufacturer. And so we don't just
design it and then hand off the design to what, in our
industry, they call them an EPC, an Engineering Procurement and Construction Group, so basically you're
a builder. Oftentimes, people will come with their Hydra project and they're like, here
it is, go build it. We do the engineering and
the development in-house. And so when we start
building a project, There's going to be a gasket, and I'll share
a photo of this with you. We just go downstairs, and we look at the gasket. We're
like, how's the development going? And the reason I start
there is because in order to offset some
of the challenges of pulling together these projects, we've brought as much as we possibly can in-house,
so it is end-to-end. Because you've
got to get You've got to get the feedstock side, you've got
to get the optics side, you've got to get all the engineering done, you've got to get the financing in place,
you've got to get the regulatory approvals. And that's a handful of
agreements that all have to line up before what they call FID final
investment. That's the final trigger. And so our mission
with this integration is basically to speed up the time of
project development by standardizing the process, by controlling the manufacturing
in-house. Um, and making it so that, you know, we could bring these projects
online significantly faster as opposed to, you know,
So, yeah, I think, I think you mentioned to me in a, in our previous conversation,
something about the percent of projects that actually get to FID or
that are at FID after, cause it, you were telling, talking
about the importance of financing and that it's only like, I think you said like 4% make
Yeah, and I'll make a note to share the actual sources. So there's an
industry association called the Hydrogen
Council. And then there's another, I think it's
I have to interrupt and say that sounds so cool. The Hydrogen Council
sounds like badass. It's like, what are the other elements on
the periodic table that have their own council? It's the council, I
There is actually a hydrogen council. It's
an alliance of all of these megacorps, and
they're all trying to figure out how to push hydrogen. In
some sense, we're talking about measurably changing
single digits to dozens of digits of final
end use. Depending on the estimate, it might be going from
100 million tons to a billion tons of hydrogen in the
coming decade. There's this huge, yeah, there is, they
do it, they set all this global policy and they put
together these reports. Out of something like, the
amount of announced hydrogen projects is approaching 40 million tons
of clean hydrogen. So in theory, the market's gonna grow by 40%, which
is no joke. I mean, that should be huge. But only
4% of that is actually at the finish line
and being built today. So really, the gap
is, 38 million tons that may be
coming online and 2 million tons that's actually actively in development.
That's crazy. What's the difference? What prevents more? Why don't
I mean, there's a lot of ways that the projects could die. Again, I'd
say the largest driver comes down to, at the end of the day, as I always tell
my team, it's like offtake rules everything. And at the end of the day, if
the economics of that, the unit economics of that hydrogen supply just don't work, the
deal doesn't work. And the challenge for some of these is
that at the mega scale, if you're talking like, I'll
give you an example. There are some projects to
try and take, say, the coast of Australia and invest
on the order of $40 billion and make an enormous amount
of hydrogen for both domestic use and export. And all of a sudden at that
scale, the regulatory challenges can become super
immense, right? And they take a long time. So there's a lot of reasons why, but I'd say it's
primarily driven by cost. And then second is you'll run
right into certain levels of regulatory challenge depending on the jurisdiction. And
that's where your magic comes in. That's where we, yeah, that's what we're
focused on. We're focused on, you know, I'd say markets
where we can transact today with quality off takers.
And, you know, we will supply either pure hydrogen or we will supply a
hydrogen derivative like a synthetic natural gas or what's
sometimes referred to as E-methane or electric methane to
Are there other use cases that you want to talk about? We always sort of got to transportation, I guess,
I would say broadly the category that it feels we've covered and
it becomes important because it then touches sort of everything else because if
we want to sort of list them out, there is transportation, both, you
know, you know, from vehicles, trucks, marine,
rail, air. Hydrogen will do, again, compete
against everything above a truck. But then I'd say
the other sort of category is hydrogen as an input for
chemical production. So this is where we're talking about ammonia, for instance, sometimes
methanol. Those are other categories. And
then the rest is primarily for heating. So just directly
displacing, you know, the use of natural gas for heating. And
that's Depending on the economics
of where your natural gas supplies, that either makes sense or doesn't. But
that's, say, another huge, huge application. And for us,
we're focused on displacing natural gas with hydrogen or
a hydrogen derivative and producing synthetic fuels
for whatever the whatever
the end application required for that is. That could be marine, it could be rail, it
could be aviation. Sorry, not rail. It could be marine, it could be aviation.
What are some of the most common misconceptions you
get that people have about hydrogen that are just annoying
Safety is absolutely paramount. Hydrogen
is energy dense. It's also super combustive. You want that combustive potential. And
so safety is absolutely important. And depending on the application, there's different ways to handle hydrogen
safely. And the industry has been doing it for more than a hundred years. So
having just said that, the first question that people will
often ask is, what about the Hindenburg? And what
about that explosion? And it's stuck
in the public imagination, and it's one of the only touch points that
many people have for Hydrogen. And so I would say that one comes up a lot. You
know, I think it's not well known that there's a guy named Addison
Bain, who's a scientist who went to basically
exonerate hydrogen from the Hindenburg explosion.
Because what happens is that there was these... What
happens is that the hydrogen actually flares very quickly. Hydrogen, you know, it
burns extremely quickly. And so it basically like flares
off. What it lit up, though, was the metal-based paints
and the outer hull and the bladders, which were then ignited. You know,
Hydrogen's like, oh my gosh, Hydrogen's, you know, da-da-da-da-da-da-da-da-da-da-da-da-da-da-da-da-da-da-da-da-da-da-da-da-da-da-da-da-da-da-da-da-da-da-da-da-da-da-da-da-da-da-da-da-da-da-da-da-da-da-da-da-da-da-da-da-da-da-da-da-da-da-da. Yeah,
got a bad rap. Exactly. And so I think the way he said
It was the spark. I mean, it wasn't that somewhat
imaginative image that people have. And I think
the way he said it was, maybe we shouldn't paint
our airships in rocket fuel. That was the way
that Bain put it. And so, of course, now today, you don't
use metal-based paints, of course, but that's time. I'd
say that's sort of the number one thing. The
other one, and this is funny, so I had a... One
other thing I'm super passionate about is hydrogen directly for use in combustion. Low
energy efficiency, but has other benefits. For an
experiment, for a prototype, we took a Chrysler 300 and
we converted it so it could run on pure hydrogen and pure gasoline, and
you could swap between the two. And one
of the things that would happen so often is
that people actually think hydrogen is water. And so they'll say
things like, oh, well, yeah, we're just going to power everything on water, right?
I'm like, well, just think about that for just a second. But I'd
say that's actually a very strong number two. People are like, well, wow,
we'll just put water in the car. There
is a step in between there. But that one actually comes up quite
a bit. Hindenburg, hydrogen is water. And
then I'd say the third one is just all flavor of you know thermodynamic
braking Solutions like people just like oh, yeah, well there's I
think there's this idea that You know
if you can get like small hydrogen production. You know you'll
just get a little electrolyzer You know my car or like or something like this,
then I can just have you know low-cost energy I'll put the solar cells
of the car. I put an electrolyzer There's all sorts of schemes like this, like
small scale electrolysis and everything, but the reality is that none of
that actually scales and is economic. But it comes
up a lot, like the number of times where
people talk about sort of their like, I will break free from the grid
and be energy independent myself. It's like, well, it's a little harder than that
Did you call it thermodynamic braking? Is that what you
It's because you're not going to get more energy out than you put
in, but a lot of times it's like, well, yeah, if I just have my water, I still have unlimited
energy, right? I'm like, we're all bound by the laws of thermodynamics here.
It's like the perpetual motion machine version of hydrogen sometimes
Totally, totally. There's hydrogen all around me right now. I'm 70% water.
There's lots of hydrogen in me. Are there any projects that you
would feel comfortable talking about? Like, you know, just as an example, like
an example project that you're doing. I think you have one published on your website, right?
Yes, yeah, happy to chat about that one. That's public. Yeah,
that's um, so this is an example of pure hydrogen
use. So in this project, the hydrogen
is produced via electrolysis. And the hydrogen is
then being distributed through a dedicated
hydrogen pipeline so that it can be used to reduce natural
gas consumption in a pulp mill. And so that's a
commercial, it's our first major
commercial project, and it's a demonstration that there's actually a new model
for making Hydrogen Simple. We actually make it
work for a large industrial customer, and we take care of everything
from the hydro production all the way to the distribution to
that site. And so we're super excited about that. The
system will be online early next year, and I'm
hoping to do one of those drone fly-throughs through the plant. I'll
share some of these photos. It's a large
system. It's going to produce over 10 tons per
day of hydrogen, so you can imagine it's two stories of
electrolyzers in a huge bay. I'll share this photo with you. It's
Yeah, you got to do it. Have you seen the video of the first person view
drone that flies through the Tesla Germany factory?
Yeah, it's like right through some of those frames. Exactly. Yeah, exactly.
Yeah, I mean, yeah, it's, it's, you know, it's some of these projects, you know,
they're some of the largest, you know, electricity uses in their region, right? And they're
huge scale systems. And like,
the visuals are amazing. Like the, the, at this pub, well, there's
a, it uses natural gas for heating in this, this giant boiler. But I mean, like,
you're seeing like this huge combustion going on.
And it's, it's visually pretty awesome. So yeah, definitely.
I'll definitely share some of the footage, the the material we have now,
but that's the goal is like, let's get, let's do the drone thing as soon as we can.
Is there any piece of technology that in particular, like
that you would snap your fingers and just have exist to help you
accelerate the advent of using hydrogen, like clean hydrogen? Would it just be
additional cheap solar? Would it be some sort
of, I don't know, better electrolyzer or something? If you could choose
any one technology accelerated five years right now, which
There are some ideas at the edge for
how to better store hydrogen. There's all sorts of different... I don't want
to get into the specifics of it, but if there was a way to address the volumetric issue,
I think that would really be a true game changer. So
today we're sort of bound by either using existing
gas and the current compression technology If we
could address the volumetric issue, that would
make a huge difference. I'd say the other side is if
you could waive one thing, and this is actually maybe more closer
to actually being a want that can be waived, it would be to
massively de-bottleneck grid
interconnection. Because there's actually an enormous amount of renewable energy
that's been built, or renewable energy capacity that's been built. But
the challenge is actually getting the interconnection agreements and getting it onto the grid. And
so there's this astounding graph. It's something like,
you know, we, grid capacity has only gone up, you
know, a small amount. And yet
there's all this renewable energy capacity just waiting to come online. And that would
be That's actually a real thing that can be
done. There's no, the project's already built. We just got to get them connected and
that would put them way more energy online for large scale
hydro production. So that's, yeah, one's maybe more harder
to do, but there are some ideas on how to do it, pull that technology, you know, into
First of all, this is awesome. We've covered so much ground. This is this perfect. I'm curious, just
sort of like, like wrapping it up, like, what's different this
time around? You know, it seems like, you know, people have been excited about hydrogen before, and
it's, it's always had this kind of chemical potential. But it
seems like now is sort of unique. And I'm curious, like,
Yeah, and it sounds almost like a lame answer
in the sense that many things have come together at the right time, but they have. And
so, you know, the hydro
production technology has gotten to the point where it's mature and can be
acquired at scale and costs are falling. Massive amounts of renewable capacity
is coming online and costs are falling and the learning rate is continuing. Carbon
capture technology is mature and real and costs are declining. There's massive
regulatory support for it. And in some ways, those
are all supply side answers. But then on the demand side is
the shift for net zero and having, I'd
say, the largest energy users in the world. now
having done as much as they can on renewable energy acquisition,
now working to decarbonize sort of the rest of their value chains. And that
all has come together where you now have massive amounts of hydrogen demand
being combined at the same time where there's now true economic supply. And
that's where we're sitting right at the middle and trying to, you know, break
together as much of that and build, you know, the leading hydrogen platform.
That's super exciting. Awesome. Thanks, man. I really appreciate you coming on the show. This is