Tom Narayan:
I'm Tom Narayan, RBC's European Autos and Commercial Truck Analyst. And thanks for joining our session today. This is the fifth in RBC's Navigating the Energy Transition series. Today's session will be focused on exploring hydrogen mobility. We will take a closer look at four transport modes, truck, car, rail and marine. And try to determine where hydrogen applications make sense, over what timeframe, what the key obstacles are and who can be best positioned to capitalize on these themes?
Sabastian Kuenne:
I'm Sebastian Kuenne, Research Analyst here at the RBC Penn European Industrials Team. And I will be hosting the discussion on rail and marine. We have with us Daniel Chatterjee, the head of technology at [inaudible 00:01:07] health systems. As well, as Anise Ganbold, she is a project leader at Aurora energy research here in Oxford and consultancy to the UK government.
Sabastian Kuenne:
Maybe let's start with you on Anise, the basis of any rollout of hydrogen in transportation or mobility has to do, or is driven by the availability of hydrogen. And you need mass produced hydrogen. Users will eventually have to bear the cost or the price of hydrogen. Your company did extensive work on the cost structure, and not just for the next years, but for the next decades. Could you please share your thoughts on how competitive hydrogen is going to be in the next decade?
Tom Narayan:
Maybe we'll start with trucks and cars. Mark, you're [inaudible 00:02:04] with H2 energy, as I understand it is a transportation as a service model in Switzerland, where, despite the large gap between diesel pricing and hydrogen prices, it's already economical for you.
Mark Freymuller:
Tom, you're absolutely right. We have really a financially viable business set up here. And as of now, we can already offer an attractive alternative to diesel trucks. And that is a very special situation here in Switzerland, because on the one hand, we have higher diesel prices here. So the benchmark we have to meet is at a higher price point. And then on the other hand, there's a Road tax. This Road tax is directly connected to the weight of the vehicle and the annual mileage.
Mark Freymuller:
And we are talking about quite some significant money here, which we do not have to pay if the vehicle, or if the operator does not have to pay, if the vehicle is inventory. And this gives us an opportunity here to really have a business case, which already works, also financially. It's a good starting point here in Switzerland and now have to see how, and to which degree that can be copied, so to say, to other countries, as well.
Tom Narayan:
Yeah. And maybe as a follow up to that, obviously the next question is, you may work at Switzerland, but what's your opinion of the appetite of other governments in Europe providing this level of support?
Mark Freymuller:
Well, the appetite is quite significant. There are very ambitious goals, in regards to hydrogen strategies and becoming number one in hydrogen ecosystems and so forth. The ambition is there. There is huge funding available as well, I must say. But when it comes to realization and bringing vehicles on the road, there're not that many ideas, but the ambitions are absolutely there.
Mark Freymuller:
It's all coming from CO2 savings. That's the basic logic behind it. And that's why we are also just focusing purely on green hydrogen. That means that the hydrogen we are utilizing, the truck, is created based on renewable electricity. That means we're really CO2 free along the food chain, so to say, in the hydrogen production. And not only just locally with the truck operation.
Mark Freymuller:
Now, the question is just really, how is the TCO gap, I just described, compared to the Swiss model? How is that closed in other countries? For that, probably let me... It's important to understand that we are not selling the truck. We're utilizing a pay per use model, that means that the customer pays a certain fee per kilometer, besides the driver, includes everything.
Mark Freymuller:
It includes obviously, the operation of the vehicle, the service warranty, and so forth. But also the hydrogen side. The customer does not have to worry about where to get the hydrogen from. Does it have the right quality and so forth? We're taking away that hazard from the customer and giving them really a hassle free package, so to say. But the background of that is we are taking care of the whole ecosystem.
Anise Ganbold:
I will talk about where hydrogen prices are going, because you need to know where the hydrogen prices themselves are going, in order to know when is this hydrogen and mobility going to be kicking off.
Anise Ganbold:
On the next slide, I'll start talking about where the cost for blue hydrogen are going to go. Blue hydrogen is hydrogen that's made from natural gas, either through steam-reformation, auto-thermal reforming. And overall the cost of blue hydrogen between now and 2050, we expect is going to be relatively stable.
Anise Ganbold:
On the left hand slide, I'm showing you what makes up the actual cost for hydrogen. And it's shown as LCOH, which is the levelized cost. You can see that hydrogen is made of the typical cost. So CapEx, fixed operation and maintenance cost, variable operation and maintenance cost. But the biggest cost towards making blue hydrogen, now and in the future, is going to be the cost of your fuel, which is natural gas.
Anise Ganbold:
You also have to pay a little bit for the carbon. And of course, in order for this to be blue hydrogen, low carbon hydrogen, as opposed to gray hydrogen, you need to pay for some carbon capture in storage. Overall, these are the elements that make up the cost of blue hydrogen. And natural gas makes up a significant chunk of the cost of blue hydrogen. Naturally where blue hydrogen costs are going to go between now and 2050, is really driven by where gas prices are going to be going.
Anise Ganbold:
On the right hand side, I showed two different types of blue hydrogen technology. One is steam methane reforming, or SMR for short. And one is auto thermal reforming. And you can see, during our forecast period, the cost of blue hydrogen is going to be relatively stable, around the two and a half to $3 mark.
Anise Ganbold:
And then in the next slide, I'll do this same thing for green hydrogen. But before I just show you a chart showing where green hydrogen costs are going to go between now and 2050, you have to understand that the green hydrogen cost is really variable. And it really depends on how you are running your electrolyzer. Before I just show you a chart showing this is the green hydrogen cost till 2050, I wanted to explain one factor that really determines green hydrogen costs. And that is how you run your electrolyzer.
Anise Ganbold:
If you have an electrolyzer and you are only going to run it 10% of the time, so only 10% of the hours of the year. You can decide to only run in those hours where power prices are extremely low. And in some countries, like Germany, you see power prices going negative. We did exactly that research that you mentioned. Europe wants to have a lot of hydrogen demand, and it won't necessarily produce it themselves. And so we looked at exactly those countries you mentioned.
Anise Ganbold:
Countries that are staying in their strategies or in their policies. We want to produce hydrogen for the export market. So Russia, for example, wants to export a lot of hydrogen. So does Morocco, so does Chile, so does Australia. And in one of our studies, we looked at what is the cheaper source of hydrogen on a global basis?
Anise Ganbold:
And we found that actually, you can get low carbon hydrogen, theoretically, very cheaply for Morocco. Morocco has very low power prices. Its power market is set by a new coal plant, as well as renewables. And Morocco has partnered with Germany to produce low carbon hydrogen. We found that the price actually that could be reached by Morocco, green hydrogen, is probably two thirds of the cost of European green hydrogen. So much cheaper. But then when you start importing...
Sabastian Kuenne:
[crosstalk 00:09:39] or by tax. [crosstalk 00:09:44]
Anise Ganbold:
If a country wants to push for green hydrogen now, they need to subsidize. Either on the supply side or on the demand side.
Sabastian Kuenne:
Daniel, after hearing the use of hydrogen in cars and trucks and the cost structure. What is your view on the use of hydrogen in rail and marine? And basically the bigger applications on, let's say, heavy load applications. What can you tell us there?
Daniel Chatterjee:
We believe hydrogen will play a key role in de-carbonization because they're very high power applications, up to several megawatts, you need to power. And they're not the option to you and direct electrification. Just to give you an example. One, if you take a 10 two megawatt engine and a Marine application, for example, mobile engines, run it for eight hours, you would need 100 tons of batteries.
Daniel Chatterjee:
So energy [inaudible 00:10:51] is the key. And that brings us to the fuel. And the challenge is there that, let's say diesel still has 70% more energy density than other fuels like hydrogen, things we discuss.
Daniel Chatterjee:
If we think on hydrogen, we would go also, or we need fuels made out of hydrogen. So, as hydrogen is always direct use of hydrogen. And as particularly large part of our applications were made by synthesized use, or where you take the green hydrogen and you further process it to synthetic diesel type or methanol or things like that.
Daniel Chatterjee:
We see also in our market like a Marine, I think we will meet and we'll see, besides hydrogen, also identity versions of it, for the synthesized products. And maybe to add that maybe was just the fuel side. And eventually it brings us to the topic that we need new, let's say, power converters. Because I mentioned clearly diesel could run on an engine like today, but if we go for methanol, I believe there is a share of hydrogen also, then we talking about energy converters, engine running on hydrogen, for example, or I see [inaudible 00:12:20], in those type of applications.