Industrial Matters...and so does Hydrogen!

Remember when you were introduced to Hydrogen? For me it was in grade 8. My chemistry teacher (a high energy, great teacher with a "wacky professor" sort of vibe) taught the periodic table to a bunch of frightened junior high students. He started with the first element, Hydrogen. Atomic No. 1! I didn't know what I was looking at, but I thought "well, if it's number 1, it must be important." I later learned that hydrogen, this colorless, odorless, tasteless, non-toxic gas made up about 75% of all normal matter on earth. It was the most abundant chemical element in the universe. But what really caught my attention was when the teacher showed us an old grainy film from the late 1930s about the Hindenburg. Remember the hydrogen filled airship that went up in flames? Disaster! The film definitely made the desired impact. It taught a bunch of squirely kids that hydrogen was powerful... oh and highly combustible. Fast forward over four decades later and I'm still struck by the importance of this combustible super gas.

In my last post I introduced why industrial matters matter so much to all of us in British Columbia. I won't repeat myself here (check out the post) but what I will say is that real wages, affordability, and our standard and quality of life is directly corelated to productivity gains and a positive trade balance. And ideally, the surplus trade balance comes from high value commodities, goods, services and technologies "of the future" that we can export and that emanate from our competitive advantages. These exports are also ideally scalable and sustainable (both economically and environmentally) ... like hydrogen production.

Hydrogen will be a key element (pun intended) in how Canada reindustrializes after decades of globalization policies that negatively affected our manufacturing and resource sectors. Not only can it be a competitively advantageous resource for Canada to export around the world, but it will help our nation achieve its net zero emissions targets. Realistically it won't be the sole answer to our decarbonization goals though. Nuclear energy and renewables will also need to play a huge part. So will carbon sequestration used in fossil fuel production processes during the world's transition towards clean energy. But a home grown hydrogen industry will definitely bring many advantages to Canadians.

The global energy transition won't be easy though. It's happening all be it slowly. The McKinsey Global Institute just released a report entitled The Hard Stuff; Navigating the physical realities of the energy transition. (The Hard Stuff Report) . It looks at what it will take for us to create the physical building blocks that the new low-emissions system requires. In other words ... the "hard stuff." Here's a summary.

• The energy transition is in its early stages, with about 10 percent of required deployment of low-emissions technologies by 2050 achieved in most areas. Optimized over centuries, today’s energy system has many advantages, but the production and consumption of energy account for more than 85 percent of global carbon dioxide (CO2) emissions. Creating a low emissions system, even while expanding energy access globally, would require deploying millions of new assets. Progress has occurred in some areas, but thus far has largely been in less difficult use cases.
• Twenty-five interlinked physical challenges would need to be tackled to advance the transition. They involve developing and deploying new low-emissions technologies, and entirely new supply chains and infrastructure to support them.
• About half of energy-related CO2 emissions reduction depends on addressing the most demanding physical challenges. Examples are managing power systems with a large share of variable renewables, addressing range and payload challenges in electric trucks, finding alternative heat sources and feedstocks for producing industrial materials, and deploying hydrogen and carbon capture in these and other use cases.
• The most demanding challenges share three features. First, some use cases lack established low-emissions technologies that can deliver the same performance as high-emissions ones. Second, the most demanding challenges depend on addressing other difficult ones, calling for a systemic approach. Finally, the sheer scale of the deployment required is tough given constraints and the lack of a track record.
• Understanding these physical challenges can enable CEOs and policy makers to navigate a successful transition. They can determine where to play offense to capture viable opportunities today, where to anticipate and address bottlenecks, and how best to tackle the most demanding challenges through a blend of innovation and system reconfiguration.

The report goes on to list the top twenty-five physical challenges that need to be addressed for the energy transition to succeed. Here they are:

McKinsey's bottom line? The transition is happening ... but it will probably take longer than expected, be more expensive than expected and be more difficult than expected. But we humans are a driven, adaptable and innovative bunch so we'll get there (I added this last bit!)

Back to Canada now! Here's some good news.

Do you know that Canada, as of 2020, has a national hydrogen production strategy? Yup, you can find it here (Canada's Hydrogen Strategy) . There' a snazzy little cartoon that summarizes it nicely.

Apparently, there are around 100 hydrogen production projects that have been announced since 2020 but progress is slow. Nevertheless, it looks like we're on our way. The Federal Government published a progress report in April 2024 outlining how the industry is moving forward. Some good stuff is happening. (Progress Report)

Another nifty factoid for you: did you know that British Columbia has a Hydrogen Office? Well, it does! (BC Hydrogen Office) . We also have a nascent BC Hydrogen Strategy (BC Hydrogen Strategy ). Here's the summary:

The strategy includes 63 actions to undertake over the short term (2020-2025), medium term (2025-2030) and long term (2030-beyond). These include:

• incentivizing the production of renewable and low-carbon hydrogen;
• developing regional hydrogen hubs where production and demand are co-located;
• financial supports for deploying fuel cell electric vehicles and infrastructure;
• expanding the use of hydrogen across different industrial sectors and applications;
• promoting the adoption of hydrogen in areas where it is most cost-effective in terms of emission reductions;
• creating the B.C. Centre for Innovation and Clean Energy to drive the commercialization of new hydrogen technology; and
• establishing ambitious carbon-intensity targets and a regulatory framework for carbon capture and storage.

Here's another excerpt from B.C.'s Strategy:

Hydrogen’s key contribution to B.C.’s net-zero economy is not only key in B.C.’s path to net-zero emissions by 2050, but also to building a prosperous low-carbon economy with new clean energy jobs. Home to Canada’s largest cluster of hydrogen companies, B.C. has the unique opportunity to leverage an already successful local hydrogen sector to grow its hydrogen economy. Low-carbon hydrogen’s decarbonization attributes present an opportunity for B.C. to reduce emissions and support the scale-up of B.C.-based hydrogen companies with expertise in low-carbon technologies and innovation. All of this will be in high demand as B.C. and many countries around the world pursue net-zero targets.

And, just in case you missed it, things are starting to happen in BC around the hydrogen energy sector. Here are a few headlines...

(Link to UBC's Smart Hydrogen Energy District SHED)

(Link to SFU's Clean Energy Hub)

(Link to CBC article )

(Link to article)

Exciting stuff, right? But, back to the McKinsey report entitled The Hard Stuff.

Building out this new and very important sector in BC won't be easy. Afterall, we live in a competitive world and there are countries that are well ahead of us in the production of hydrogen, especially green hydrogen. The challenge here appears to be the lack of cheap, renewable energy in BC that's required to hydrolyze water into hydrogen. Go figure right? B.C. ... a lack of renewable energy? Who would have thought?

This is where government policy needs to come to the rescue. This is where we all, as Canadians, need to change our mindset and commit to supplying the human and the investment capital to make this new high-value industry happen quickly. Canadian private equity and institutional capital needs to get behind this opportunity and commit to funding some of these capital projects. Not for free obviously. Capital needs a return for the risk and time associated with the investment. But the government needs to create the incentive for this to happen. It looks like this kind of thinking is on the table. Hopefully we can figure it out before the world passes us by.

For example, in October 2023 the Biden administration announced $7 Billion in funding to create seven clean hydrogen hubs across the USA. (Link to article). Here's a snippet:

"Funded by President Biden’s Bipartisan Infrastructure Law, the seven H2Hubs will kickstart a national network of clean hydrogen producers, consumers, and connective infrastructure while supporting the production, storage, delivery, and end-use of clean hydrogen. The H2Hubs are expected to collectively produce three million metric tons of hydrogen annually, reaching nearly a third of the 2030 U.S. production target and lowering emissions from hard-to-decarbonize industrial sectors that represent 30 percent of total U.S. carbon emissions. Together, they will also reduce 25 million metric tons of carbon dioxide (CO2) emissions from end-uses each year—an amount roughly equivalent to combined annual emissions of 5.5 million gasoline-powered cars—and create and retain tens of thousands of good-paying jobs across the country while supporting healthier communities.?

Today’s announcement is one of the largest investments in clean manufacturing and jobs in history. This transformative Federal investment will be matched by recipients to leverage a total of nearly $50 billion to strengthen local economies, create and maintain high-quality jobs—especially those that support worker organizing and collective bargaining—and slash harmful emissions that jeopardize public health and pollute local ecosystems. In addition to positioning America to be a global leader in emerging clean energy industries, the H2Hubs will implement comprehensive local benefits and workforce proposals to support the President’s vision of an equitable and inclusive clean energy future."?

One of the projects announced is called the Appalachian Hydrogen Hub (ARCH2). The project literature describes the project in the following manner.

"ARCH2 is a collaborative initiative between private industry, state and local governments, academic and technology institutions, nonprofit organizations, and community groups working together to build a safe and sustainable clean hydrogen ecosystem in Appalachia."

ARCH2 is off to a bit of a rocky start apparently. You know what they say, "Hard stuff is by its nature ... hard!" Regardless, the mindset and the approach is what I'm talking about. We need more of this kind of thinking ... collaboration in action!

Atlantic Canada seems to be making some progress on the green hydrogen front. In May 2024, the Ministry of Industry, Energy and Technology released Newfoundland's new Hydrogen Development Action Plan. Apparently, they already have four projects selected through a bid process that are under early stages of development. Early days yet. Let's see what happens.

So, in summary, hopefully, we can figure this hydrogen production thing out in Canada and in B.C. There are definitely some green shoots popping up. And, if you believe the pundits and the economists there's a massive addressable global market for hydrogen. Here's an excerpt from Canada's Hydrogen Strategy:

"With worldwide demand for hydrogen increasing, there is a significant opportunity for Canada to become a supplier of low CI hydrogen as a new carbon-free energy export commodity complementing Canada’s energy exports of crude oil, natural gas, and transportation fuels. Canadian oil and natural gas exports alone totaled $119 billion in 2019, and, with import countries looking to decarbonize their energy systems, hydrogen could take a significant portion of this share in the coming decades.1 There is also potential to grow the export market for Canadian products, services, and intellectual property. A recent study indicated that hydrogen exports could reach $50 billion by 2050, doubling the overall economic potential of the market projected for Canada in the same timeframe. 2 In November 2017, the Hydrogen Council estimated that the global annual sales for hydrogen and related equipment could be 2.5 trillion by 2050.3 More recently in September 2020, the global investment bank Goldman Sachs estimated that the addressable market for hydrogen could be worth $11.7 trillion by 2050, split between Asia, Europe and the U.S.4"

We just need to do what it will take to capture our share of the pie.

How does that old proverb go..."the best time to plant a tree was 20 years ago. The second-best time is now."

ben

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