We recently attended the World Electrolysis Congress in Dusseldorf, Germany. Our findings from that event have gained new relevance in light of the US Department of Energy (US DoE) allocating $1.7 billion for six industrial projects focused on clean hydrogen utilization or production.
One of the big takeaways from the conference in Germany was that the industry still needs to make its legal framework clear for companies to align their business cases accordingly and then join the game – either through production or utilization. The US DoE took another step towards adding to the clarity of this legal framework in the US with this new round of subsidies which is part of a broader $6 billion initiative. Over half of this funding will support the development of hydrogen-based direct-reduced iron (DRI) for green steelmaking, with $500 million allocated to each of two steelmakers, SSAB and Cleveland-Cliffs Steel Corporation.
SSAB intends to establish its maiden commercial-scale DRI plant utilizing its Hybrit concept, which relies on green hydrogen and renewable electricity, at a facility in Mississippi. This project, backed by US developer Hy Stor, will also facilitate the expansion of SSAB’s steelworks in Iowa, enabling the production of steel using hydrogen-derived iron.
Cleveland-Cliffs plans to implement a hydrogen-ready DRI plant at its Middletown Works in Ohio, with funding support from the government – meaning it will still run on natural gas for a while but will be ready to switch to hydrogen when the fuel becomes available.
Additionally, the Department of Energy has allocated funds for Constellium’s project to utilize hydrogen in its furnaces in West Virginia, ExxonMobil’s initiative to transition to hydrogen for industrial heat at its Baytown plant in Texas, and Orsted’s Star project in Texas Gulf Coast for e-methanol production.
Rethink has always described the electrolyzer market as a precursor for green hydrogen, which logically it is, but there’s also a need for green hydrogen demand to be reliable, before it’s possible to invest at scale in green hydrogen production, starting with the facilities that make the electrolyzers.
Multiple executives at the German conference called for the standardization of industry, namely electrolyzer testing. This would alleviate any concerns about cheaper Chinese designs making their way into Europe for instance and jeopardizing the safety of project while running away with subsidies. Energy producers, who buy the electrolyzers, are not yet accustomed to these systems. They need an internationally recognized standard to make an informed decision when purchasing their setup.
Which brings us to financing. Capital flows with clarity and as mentioned, a clear regulatory framework is necessary before projects can get off the ground.
Moreover, if the technology that you are using has been proven then the money will come more easily. Banks are only signing off loans for PEM (proton exchange membrane) and ALK (alkaline) electrolyzers as these technologies have a good track record.
That makes it hard for a new technology to break ground even though there still isn’t one solution that fits all cases when it comes to electrolyzer design. ALK has lower cost, but PEM has a better intermittency response. PEM has higher current density, but P-ALK (pressurized ALK) is catching up, increasingly showing comparable current densities and intermittency response.
Perhaps the most relevant point raised at the Dusseldorf event was how a gradual approach is absolutely necessary. Companies need to learn from pilot projects (1 or 2 MW) in order to then scale up around the 10-20 MW mark which paves the way forward toward the 100 MW ballpark. At that point several 100 MW projects next to another would result in an industrial scale plant which start to move the needle on decarbonization. Any GW-scale project announced today is nothing more than empty words, with even China only reaching 260 MW scale with Sinopec’s Xinjiang Kuqa Green Hydrogen Project.
Overall, long term business plans can’t rely on incentives. They need to be self-sustaining. More policies are not really needed but the current ones need to be implemented.