Venture Capital is betting on hydrogen to be the darling of the next 10 years

Hi Climate Community,

We will feature a few posts this month looking at Hydrogen.

Move over fossil fuels, there’s a new fuel in town. Hydrogen is the latest energy source to be making waves in the global economy.

Hydrogen will have the most impact in sectors that are hard to electrify and where the technology and infrastructure constraints can be overcome. In mobility, long-haul trucking will have the most potential because its energy to weight ratio is superior to that of batteries. The mass-application of hydrogen in personal transport would be helpful to get the costs of fuel cells and refueling infrastructure down, thus supporting applications in the more promising segments such as long-haul trucking or busses.

Let’s take a closer look at the costs, risks and trade-offs of hydrogen and why green hydrogen is an especially attractive option.

Hydrogen energy production has historically been expensive due to the cost of equipment and infrastructure required for its use. However, recent advances in technology are driving down the cost of hydrogen production and storage. As more companies adopt hydrogen as an energy source, the cost will continue to decrease, making it even more competitive with traditional fossil fuels.

Like any new technology or energy source, there are risks associated with using hydrogen as an energy source. These risks include safety concerns related to storing and transporting large amounts of hydrogen gas, potential environmental impacts from storage or leakage of hydrogen gas, as well as financial risk related to investing in new technologies that may not prove successful over time. Additionally, switching from traditional fossil fuels to hydrogen requires significant investments in infrastructure which can incur additional costs.

Green Hydrogen

One type of hydrogen that is particularly attractive for use in the global economy is green hydrogen. Green hydrogen is produced through electrolysis powered by renewable energies such as wind or solar power rather than from natural gas or coal sources like many traditional methods of producing hydrogen gas do. This makes green hydrogen a much more sustainable option than traditional sources of fuel because it does not produce carbon emissions while being produced or burned for energy usage.

Use Cases & Sectors That Benefit From Green Hydrogen

Green hydrogen has several potential applications across multiple sectors including transportation (especially aviation), chemical manufacturing, power generation, industrial heating/cooling systems and residential heating systems. Additionally, green hydrogen offers a number of economic benefits such as job creation from investments into infrastructure and increased revenue from exports due to its increasingly competitive price tag compared to traditional fossil fuels.

Hydrogen has quickly become one of the most promising new fuels on the global market. With its low cost and zero emissions profile when produced through green methods, it offers an attractive solution for businesses looking for ways to reduce their carbon footprint while still maintaining profitability.

By understanding its costs, risks and trade-offs—as well as possible use cases—businesses can make informed decisions about how best to incorporate this new fuel into their operations while reaping all its potential benefits. With so much potential ahead, there’s no better time than now to get onboard the “hydro train”!

Venture capital players are backing hydrogen!

Solar and wind energy saw exponential cost declines in the last decade, leading many to wonder if hydrogen will be the surprise of the next decade. Venture Capital is betting on this possibility; investments in hydrogen nearly tripled in 2021.

Early-stage deals have been particularly strong, with companies such as FTXT Energy Technology and EnerVenue raising millions in 2021. The number of deals has also grown substantially, meaning that the average deal size has increased significantly.

Private capital is flooding into the hydrogen economy, with record-breaking investment by VC and PE firms in 2022. PE firms deployed $3.1B across 37 deals & venture firms invested $2.6B in 192 startups. VC hydrogen deal count has more than tripled since 2014 with quadrupled PE deal count.

Corporate VCs are joining the hydrogen and climate tech game!

ABB Technology Ventures, the investment arm of ABB Ltd., was one of the most active financiers of climate tech businesses in 3Q 2020, investing $10.7 billion into the sector.

ABB closed 10 deals with startups totaling $100 million in 2022, a record amount for them. European industrial companies like ABB are searching for new markets such as electric vehicles and renewables due to inflation and an economic slowdown.

ABB is also participating in large-scale deals, such as the massive $1.1 billion financing round into Swedish battery-maker Northvolt AB.

Other industrial conglomerates such as SE Ventures have also launched large funds for startups in industrial automation and climate tech. While there is concern that big companies might lock startups into exclusive agreements, both ABB and SE Ventures deny this practice.

Electric Hydrogen, a Boston-based cleantech startup, closed a $198 million Series B—a mix of equity and venture debt. Fifth Wall Climate Tech led the round with Amazon’s Climate Pledge Fund, Honeywell and Mitsubishi Heavy Industries also included as strategic investors. Electric Hydrogen has developed a patented electrolysis process for industrial applications.

I look forward to the 2020s, as the investor and climate tech community look to scale and commercialise hydrogen technology and projects.

Cheers,

Fritz