#13: Simon Pickup - Exploring Use Cases for Hydrogen Fuel | Teralta
S1:E13

#13: Simon Pickup - Exploring Use Cases for Hydrogen Fuel | Teralta

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,

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strata.io slash firstprinciples. Let's get back to the show. Okay,

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

Episode Video

Creators and Guests

Christian Keil
Host
Christian Keil
Host of First Principles | Chief of Staff @ Astranis