Episode 117: H2 Debate w/ Gene Berdichevsky & Jigar Shah
Jigar Shah
Today's guests are Gene Berdichevsky, Co-Founder & CEO at Sila Nanotechnologies, and Jigar Shah, President & Co-Founder at Generate Capital.
Now we've done episodes with each of them before individually, but I asked them to come on together. And the reason is in the My Climate Journey Slack room, there was some discussion about hydrogen.
Gene Berdichevsky
And as it turns out, Jigar is a hydrogen "bull" and Gene is a hydrogen "bear." I respect both of these guys' opinions and so I thought it'd be interesting to have them come on the show and talk through hydrogen, what they think about it, what they like, what they don't like, where they agree, and where they disagree. They have a really fruitful and fascinating debate, covering topics such as applications for hydrogen, the ongoing barriers and what the atom’s future prospects are as a source of energy technology. This is a great discussion and one I think you’ll learn a lot. Enjoy the show!
You can find me on Twitter @jjacobs22 (me), @mcjpod (podcast) or @mcjcollective (company). You can reach us via email at info@mcjcollective.com, where we encourage you to share your feedback on episodes and suggestions for future topics or guests.
In today's episode, we cover:
What is hydrogen?
How is it used and why is it important?
Jigar’s and Gene’s respective background as it relates to hydrogen
The applications and costs associated with hydrogen
What competes with hydrogen in the energy market
The necessity of a price on carbon as it relates to hydrogen
What the natural gas boom says about hydrogen’s future
Initiatives Jigar and Gene would respectively recommend the government to employ
Predictions of hydrogen looking a decade out
Links to topics discussed in this episode:
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Jason Jacobs: Hello, everyone. This is Jason Jacobs and welcome to My Climate Journey. This show follows my journey to interview a wide range of guests to better understand and make sense of the formidable problem of climate change and try to figure out how people like you and I can help. Well today's episode, we have a couple of guests.
One is Jigar Shah, the Co-Founder of Generate Capital and the other is Gene Berdichevsky, the Co-Founder and CEO of Sila Nanotechnologies. Now we've done episodes with each of them before individually, but I asked them to come on together. And the reason is in the My Climate Journey Slack room, there was some discussion about hydrogen.
And as it turns out, Jigar is a hydrogen "bull" and Gene is a hydrogen "bear." Now I respect both of these guys' opinions and so I thought it'd be interesting to have them come on the show and talk through hydrogen, what they think about it, what they like, what they don't like, where they agree, where they disagree. What's some of the most promising applications are for it. What some of the hurdles are to adoption and if they had to predict what role hydrogen will play in the future. This is a great discussion. And I hope you enjoy it.
Gene, Jigar, welcome to the show.
Jigar Shah: Thanks for having me.
Gene Berdichevsky: Great to be here.
Jason Jacobs: So this is a grand experiment because I came in, I didn't have any podcast experience at all.
And it was like, I have to speak on the microphone and everything was new and everything was scary. And then I finally, 120-something episodes in, I've gotten into a rhythm of the one-on-one thing. And actually each of you guys has come on as a guest. So now we have a topic that in the Slack room, it just happened that there was some opposing views from you guys on and that's hydrogen.
And we thought it would be fun given that hydrogen as a topic of increasing interest to get you guys on and talk through it in public, so that maybe we could all learn something.
Jigar Shah: Well, I'm looking forward to it.
Gene Berdichevsky: Likewise, I think we'll find some common grounds. Plenty of differences of opinion too.
Jason Jacobs: So maybe for starters, given that I am and a lot of listeners have maybe been hearing more about it in the news, but might not know a lot about hydrogen, what is it? And why does it matter for addressing climate change?
Jigar Shah: Well, I'm happy to start. I mean, hydrogen is a pretty fundamental element in the periodic table. I think for most of us it is number one. So I think that it holds a special place. The other thing that people don't know is that hydrogen is used in various essential services around the world and has been for decades, whether it's the production of ammonia or whether it's hydrocracking, fossil fuels, that hydrogen, it turns out, to play a really essential role in some of these chemical processes and that the more of it that you have, the more likely there'll be innovation in that space. And so pretty excited about a lot of the studying and the focus on hydrogen.
Jason Jacobs: Gene, anything to add.
Gene Berdichevsky: I think folks just don't realize how big the hydrogen economy already is.
When we talk about a coming new hydrogen economy, we have about $130 billion of hydrogen worldwide. And it's really two uses as Jigar said: it's ammonia for fertilizer, so hydrogen is used to feed the world, and it's hydrogen treating oil and refineries. And almost entirely 49% it all comes from fossil fuels today.
And so I think we have to talk about as if we're going to use hydrogen more, how does it stop coming from fossil fuels and kind of what role does it play in the new energy economy?
Jason Jacobs: And before we get too far down the path, can you guys just each speak a bit about your current perch and in what capacity you've been engaging with hydrogen in your day jobs?
Jigar Shah: We're a large supporter of plug power have been for a while. They make a PEM fuel cell that replaces batteries for forklifts, for Amazon, Walmart, and many others. They're currently the largest user of liquid hydrogen shipments in the United States. They use about 27 tons a day across about 50 locations across the United States and Canada.
So we've gotten really interested in where's that hydrogen coming from? How far does it have to travel? I mean, one of the things that people don't really pay attention to is the cost of producing hydrogen is one thing, but transporting it to its destination is another thing. And so just learning about all that stuff through the assets that we've deployed with plug power has been fascinating for us.
Jason Jacobs: And what about you, Gene?
Gene Berdichevsky: I come at it from a different angle. I come at it from the battery angle. So I think nominally I'm the bear on hydrogen on this and this discussion. I've spent the last almost 20 years now working with lithium ion batteries, first building solar cars at Tesla and now in the last 10 years I've been running a battery technology company.
And so I have an insight into how far batteries can go from where they are today and, at the places where batteries and hydrogen compete, I have a very clear perspective of what batteries can do and also the thermodynamic limits that hydrogen has, which will never change. And so I think I can speak to that piece of it.
And as well as some of the engineering challenges, as you try to bring hydrogen to new environments.
Jason Jacobs: Thanks guys. So as a newbie coming in, I mean, as you guys both know, I've only been focused on climate change with my day job for a couple of years now. And it sure seems like when I first came in, I wasn't hearing much about hydrogen at all, and now I'm hearing more and more about it.
Am I imagining that or is that true? And if that's true, what's driving that?
Jigar Shah: I think that the conversation on hydrogen has been around for a while. I first started having it when I worked at BP and BP sponsored the hydrogen interactive in Toronto, which turned into a pretty seminal moment for hydrogen and then Vijay Vaitheeswaran wrote a book called "Power To The People" that came out of that meeting.
I think the oil companies sort of bring it forward pretty regularly to try to figure out a way to preserve their own monopoly in the fuel space. And they think hydrogen is probably an easier place for them to own the means of production than in the battery space. So I think hydrogen has been around for a while.
You also had the George W. Bush administration spend a lot of money on hydrogen and figuring out how to reduce the class of hydrogen. So I think you've got a lot of money spent on innovation in that area as well. More recently, I think you've had a lot of high profile spats between Toyota and Tesla around the future of hydrogen versus the future of battery electric vehicles.
But I think that ultimately hydrogen keeps coming up because it's an alternative to electricity as an energy carrier. And one of the challenges with electricity is electricity is one of the largest, most well-priced commodities in the world. And so wholesale prices will go negative in Texas or go positive.
All sorts of things. Whereas with hydrogen, hydrogen traverses multiple energy streams. So when you think about it, 80% of global climate emissions is outside of the electricity sector. So when you think about the transport sector, when you think about the chemical sector, when you think about some of these other sectors agriculture, hydrogen has a key role in all of those sectors.
And so, if electricity prices are really low, you could sell hydrogen in some of these other sectors and have higher price points. And so it plays a different role than I think the efficiency role that most people have in their heads when they think fuel cell vehicles versus electric vehicles.
Gene Berdichevsky: Yeah, and correct me if I'm wrong. I think hydrogen goes back even before the George W. Bush era to the seventies was kind of round one and then Bush and around 2000 was kind of around two. And back then I was studying thermodynamics and doing the math and said, look, it's just so much less efficient for an electric vehicle to run on fuel cells than it is to run on batteries.
And at that time, lithium ion was just getting good enough. That that was kind of when I dropped out of school and joined Tesla in 2004. And so there was a lot of hype around hydrogen. Then we were going to have a hydrogen highway. It didn't come around. I fear that this is kind of just another cycle of that. As Jigar said, I think fossil fuel companies, that's where all of hydrogen comes from today. They're interested in maintaining that monopoly, repurposing the oil pipeline to run more and more on hydrogen, which despite what folks say you could run 10% or 20% hydrogen, those pipelines, the only test that has ever been done in a meaningful scale has been at 0.1% hydrogen in those pipelines.
And you would have to refit every single endpoint that uses natural gas to do that. So there's some real challenges with it. I don't know that we're in for anything other than another hype cycle around hydrogen, but you're right. It has kind of become a big topic again.
Jason Jacobs: In my prep for this discussion, it seems like, I mean, there's turquoise hydrogen, there's green hydrogen, and there's blue hydrogen. There're these different types and some are good for this use case and some are good for that use case; and some are clean and some are dirty. And to be honest as a newcomer coming in, it's super confusing. I mean, maybe you guys can just talk a bit about how you think about that landscape? Like what the differences are between these and is this one of these things where it's like you say the word hydrogen, and then you're in a debate and there's different voices in the discussion and everyone is envisioning a different kind of hydrogen when they're debating the merits or is there some consistency from which to have a meaningful discussion?
Gene Berdichevsky: Hydrogen at the end of the day is all the same. And so the question is where does it come from? And today, if you look at, I think all the electrolyzers that make green hydrogen in the world today have a combined input power of something like 225 megawatts, which sounds like a lot, but it's actually next to nothing.
If you just ran them 24 seven, you'd use maybe a two terawatt hours of energy. Whereas if you look at the hydrogen made from fossil fuels for those two main applications, ammonia and hydro treating, you'd use up about 6,000 terawatt hours of energy to produce that hydrogen. So you're talking about sort of one terawatt hours equivalent of green hydrogen, and 6,000 of gray hydrogen, if you will.
And so that scale is basically zero green on a relative basis to everything is coming from natural gas today, unless you're making really sort of sub economic decisions and paying a lot more for green hydrogen. The hope obviously is to transition that, but today the relative scales are really, really far apart.
Jigar Shah: I mean, maybe just to back up for a second, I think most hydrogen does come from fossil fuels. And that's what people consider gray hydrogen. Blue hydrogen is basically hydrogen that comes from fossil fuels, but is associated with carbon sequestration and storage. And then green hydrogen is electrolyzer fed hydrogen that comes from renewable energy. I think, as someone has been around the block for awhile and was in Gene's position when folks were poo-pooing the advent of lithium ion batteries or solar or wind when I started in the business in 1995, I think deployment led innovation is something that we've experienced in our lifetimes.
When we were starting to feed into our cycles and solar we're at 40 cents a kilowatt hour, and people thought we were crazy. In fact, I think people still have not up to date information as to where the cost of solar is today. And now you're regularly saying solar generated it less than 5 cents a kilowatt hour and sometimes less than 3 cents a kilowatt hour without any subsidies.
And that has allowed people to think about all sorts of crazy ideas. I mean, now you've got a guy in Singapore, that's looking at building 10,000 megawatts of solar in Australia building a transmission line under the water to power Singapore from Australia. That's crazy. It was certainly super crazy when you talked about in 1995. Today, it's actually the first phase just got financed and we'll see if the full project gets built, but that's pretty awesome. And so I think that we should focus a little less on where we are today and a little more about why people even give a damn. And I think that the reason they give a damn is that fundamentally there are certain parts of decarbonisation that aren't going to happen with electricity.
There are a lot of folks who want to make steel and cement with electricity, and I think over and over and over it shown that hydrogen is an easier way to decarbonize that process. The same thing's true with heat. There's a lot of folks who just want to make a geothermal heat pumps everywhere. And I would love to electrify everything if I could, but there are some applications where it does make sense to produce green heat by a hydrogen.
And you see a huge proposal in the UK around that. The other thing, the thing that you see is that if you want very high penetrations of renewable energy on the grid, whether it's a national renewable energy laboratory or the university of Finland, they all conclude the same thing, which is that you're basically gonna have to accept upwards of 25% of all renewable electricity being curtailed. Meaning that, when the power is not needed or the grid cannot handle moving it around, that you would just stop producing it.
In that case, electricity prices either go negative to get people to use it. Or you just waste the power, even though the renewable electricity generators have the ability to make it. And in those cases, storing that power in batteries and letting it sit there for three months until the grid actually needs it again is the height of inefficiency.
So now the question becomes, what do you do with it? Well, we do right now with natural gas is we produce natural gas all year round and we store it. Underground. And then we use it all up during the winter heating season. You can imagine that you could do something similar with hydrogen, where you actually make excess hydrogen in the spring and the fall when you don't have a lot of heating and air conditioning loads.
And you use that hydrogen all year round for fertilizers or other things. And so part of the reason why we're looking at what they refer to as power to gas is because that gas has a lot more value because it can be transitioned into fertilizer for food, into transportation fuels, into other things which is not returning it back into the electricity ecosystem, which we all believe is going to be well supplied for the next 30 years.
Gene Berdichevsky: I think the key Jason is to start thinking about the end use cases. So let's touch on one trigger brought up, which is seasonal storage. I agree; certainly today the battery technology is not there to do seasonal storage in a way that makes a lot of sense. But in the case of, do you go to hydrogen or do you take one step further in that end use case and go to ammonia, which we already basically store seasonally. We produce ammonia year round. We store it in massive, massive sort of 60,000 ton tanks. And then we deplete it in the course of one or two weeks, two times a year to fertilize the ground. And so you could imagine actually taking the hydrogen down to ammonia and that's already a system that you do this with about...there's a huge amount of chemical energy stored in that tank of ammonia, which you can actually burn. It's very similar idea to using hydrogen as seasonal storage, but I'd make the case that it's more scalable because we already have it at scale. We already do this with millions of tons of ammonia and you can burn ammonia in cogeneration plants and produce electricity.
And so you could essentially get seasonal storage without having underground taverns. You could make it more deployable. So I think part of the question for me isn't necessarily, will hydrogen play a role; will it play an end role, or will it be an intermediate like it has been today?
Jigar Shah: I would say that those are equivalent ideas.
I mean, whether you turn it into ammonia, whether you turn into hydrogen, I think is the same thing. And I think we both established that the existing hydrogen infrastructure is massive. I mean, when you think about what Linde or Praxair does on an annual basis, I mean, they handle hydrogen all the time, so it's not a new concept in any way, shape or form.
Gene Berdichevsky: I just think about this. We don't hear much about the ammonia economy, but I think part of my case in terms of being the bear case of hydrogen per se, is I think a lot of it is actually going to go to ammonia, which is going to become a much better energy carrier. We can talk about different use cases.
So we just covered seasonal storage. If you think about aviation as maybe another one where hydrogen gets thrown around every now and then. And maybe they're, I don't know, Jigar and I might agree, but I think there's no way hydrogen becomes the fuel of choice for aviation. And the reason for that is relatively simple: liquefied hydrogen, the densest state that you're going to get this energy carrier too, is about 7% as dense as water or gasoline.
And so you'd have to basically 15x the size of your fuel tanks on an airplane, if you're going to run with hydrogens that are jet fuel, for example. So you're going to have to have something; ammonia is much denser on a volume metric basis, obviously. Hydrocarbons are even denser still, so there's certain places where folks kind of say, oh, hydrogen for this hydrogen for that.
But I think again, it'll be an intermediary to some other chemical bonds. And I think there. That makes a lot of sense for me.
Jigar Shah: But it's still better than electricity. The point is is that, if you produce hydrogen, I don't think we have to put it into an airplane, but I think I could make the case that if you had a surplus amount of hydrogen, it would be easier to make renewable diesel.
It'd be easier to make a liquid fuel. It would be easier to make renewable natural gas. There's lots of things that you can make once you have access molecules of hydrogen lying around. And the second point of that is whether you actually have the ability to create amazing amounts of low cost hydrogen.
And when you look at the electrolyzer technologies that we have available today, the PEM fuel cells from Geithner and some of the other folks, I mean, you're at a place right now where they're already producing hydrogen at less than $6 a kilogram. And when you think about the end use markets, we already have an unused market in the United States of 200 to 400 tons a day of hydrogen where you're selling it at above $6, a kilogram delivered.
So you're in a situation where it's already cost effective for you to replace that stuff, which admittedly is a small market. Let's call it a billion dollars, but once you actually start deploying it, there's many people who believe that you can actually get down the cost curve, such that you can actually produce this stuff for, between a dollar and a $1.80, a kilo Graham, which is roughly what it costs today to produce hydrogen from SMR.
I think if you're in a situation where you think you can produce tremendous quantities of hydrogen at cost-effective points in 10 to 15 years, I'm not suggesting it's going to happen tomorrow then is it worth actually bringing down that production down the cost curve in the same way that we subsidized lithium ion batteries and the same way that we set up all sorts of technologies to achieve that level of deployment led innovation.
And I think the argument that I'm making is yes, because whether you're talking about marine or whether you're talking about aviation or whether you're talking about fuel cell forklifts or whether you're talking about ammonia, I think there's a lot of applications where if you have an excess supply of hydrogen, that you can do something financially productive with it.
Gene Berdichevsky: I agree there completely. If you want to get rid of carbon, you ultimately have to get away from the carbon molecules you're pulling out of the ground; and hydrogen, you don't need to pull carbon molecules out of ground to derive that. And nitrogen, you don't have to pull carbon molecules out of the ground to drive that.
And that's why if we get to a hydrogen economy, what we'll get to is really an ammonia economy at some level for many of the things. And then I think a much smaller percentage point will continue to be sort of pure hydrogen, where it makes more sense than taking that extra step into a different, better chemical energy transport.
Jason Jacobs: Well, I know, Jigar, you had mentioned that we shouldn't over-focus on where we are today. We should look at where we could get to in the future so that we determine where to invest today-- skate to where the puck is going, like Wayne Gretzky says. So, I mean, if I think about the three criterion and, and let me know guys, if I'm missing any, but there's costs-- the math needs to work-- and then there's efficacy.
Does it do the job for the stated application and then there's "is it clean?" Does it do it in a way that has less emissions or negative emissions relative to other choices? So what are the applications where you guys feel like the three of those things could line up for hydrogen first? And which ones are you most excited about, if any?
Jigar Shah: Well, the ones that already line up are the ones that we're chasing. So when you look at fuel cell forklifts, you have about a million forklifts in the United States that operate in doors and all of them could be converted to fuel cells. And Walmart stated publicly that they thought that a conversion of fuel cell forklifts was a 33 day payback for them.
And the single most productive thing they've done at their distribution warehouses in 15 years. And that's a big deal for Walmart to say that, given that they were heralded for their distribution center efficiency. So that's a good size market. Now, it's a small market, admittedly. I mean, it's not going to be a trillion dollars.
It's going to be in the tens of billions of dollars, which is fine. I think you separately have a pretty big market with Bloom Energy boxes today where they're using natural gas, but could be converted to hydrogen. It's not a difficult technical challenge. And you have very substantial, very smart people that have said that they are now using their Bloom boxes as part of their data center infrastructure moving forward.
And so I think that that market application has been established in ways that don't really subscribed to subsidies. It's not like data centers folks need to show that they're green with Bloom energy boxes. In fact, some people don't think they're green at all because they use natural gas. They're using them because they actually believe that the gas grid is more efficient than the electricity grid, more reliable than the electricity grid.
And they believe that the quality of the power that comes out of the Bloom box is far superior to a combined heat and power technology that then needs a lot of power quality equipment on the backend. So those two applications alone get you to a couple of hundred billion dollars in application. Then when you think about, as the cost curve comes down, then more and more markets open up. So I think the real question to me is that third one, you mentioned Jason, which is, can it be decarbonized? Today, it does come from fossil fuels and tomorrow it will also come from fossil fuels. I mean, that's sort of how this stuff goes. In the same way that everyone was complaining that electric vehicles were just pushing things around because electric vehicles were just being charged with coal plants. And we all said, don't worry about it. There's a chicken and egg situation. We've got to deal with both. Let's get the electric vehicle technology to be more cost effective and we'll separately deal with shutting down the coal plants; we are doing that.
So my sense is that third one is the bigger challenge, but I actually think that we have a pathway on cost reduction. I think we have a pathway on the applications and we have a pathway on decarbonization.
Jason Jacobs: Well, I have a follow up question there, but before we go there, maybe I'll ask you the same question, Gene, are there any applications where you think that hydrogen is best suited or will be best suited directionally?
Gene Berdichevsky: I look at it from not just can hydrogen do the job today, but will a battery in the next 10 or 15 years do the job much better. And so the perspective that I have is also what we haven't yet gotten lithium ion to do, but as well within the realms of possibility. So Jigar mentioned that forklifts, one of the reasons they want to use hydrogen rather than batteries is it takes a while to recharge.
And the forklift is just sitting there taking up space and, with hydrogen, you can fill up quickly and move on. Well, that's not fundamentally limitation that batteries will have in the future. It is a limitation they have today, but you can get to thousands and thousands, tens of thousands, and in some battery cases, depending on the energy density, hundreds of thousands of recharges that are done in a few minutes.
And so I think some of it is that there are non thermodynamic limits that batteries face today. There are limits of innovation. There are limits of, of scientific discovery that we are going to continue to knock down on the coming decade. And I think in some of those cases, mainly transport related ones, batteries will continue to win out over a longer period of time.
So you might see some hydrogen applications in the near term, but their ability to take over that market will be limited by the improvements you're going to see in batteries driven by the hundreds of billions of dollars that are being invested to the automotive sector until lithium ion and other technologies as well.
I think about it where do batteries continue to compete? There's other places where I think, again, I probably agree more with Jigar on whether it's hydrogen and if we count ammonia as hydrogen, we're probably both more bullish on the whole thing but distributed energy. You talk about Bloom boxes are really valuable for data centers.
There are new combustion technologies coming online now that can be scaled down to similar scales as Bloom boxes that operate as efficiently as a Cogen plant at a fraction of the upfront cost of a Bloom box. And so some of those combustion technologies can run on hydrogen; they can run on natural gas that can run on ammonia.
And so I don't know which of those energy carriers will end up being the one we end up with. Especially once we want to go clean, it's going to be hydrogen or ammonia; but if we sort of lump those two together, hydrogen ammonia, then I think kind of distributed power is definitely something where Jigar and I can agree on.
Jigar Shah: The one thing I would push back on a little bit is just this end state where we have 300 million cars or heavy trucks or the things they're just carrying around 300 miles of batteries. I mean, at some point, I mean, I get the fact that lithium is plentiful and you can figure out a way to get anodes with different materials and all sorts of efficiency gains, and you could drop the cost of existing batteries in half or even further.
But part of when we talk about efficiency and wastage, that's an awful lot of wastage. Ultimately, the only way that those batteries become a grid resource is if they're plugged in. So now you'd have to have 300 million plugs. How do you actually think about just the sheer amount of material that's going to be required to do that?
And how do you compare that to the carbon footprint or the ecological footprint of hydrogen?
Gene Berdichevsky: Again, it depends on where the hydrogen is coming from, but if you take a lithium ion battery the size of your thumb, the amount of energy at today's cycle life, not at tomorrow's cycle life but today's cycle life that'll go through that, is roughly 10 gallons of oil pulled out of the ground. So again, something sort of as small as your thumb versus like 10 gallons of oil you're pulling out of the ground. So I agree with you it's a lot of material, but we don't think about it as just how much more material we'll pull out of ground every day and, for at least the next while, for the next decade or so, we're going to be doing that to create hydrogen as well.
It is a closed system at the end of the day. You kind of recycle almost everything in a lithium ion battery and our modern economy in the U.S. we produced very little new steel, for example. We take all the cars, we pile them together, we shove a giant carbon electrode down on to a pile of steel and we run a hundred megawatts through it and we rebuild the steel and we reuse it.
And so I think you're right. We need to extract a lot of materials to put those resources online, but once we put them online, especially since the energy to recycle them is going to be coming from clean renewables, I think you do get yourself to a very sustainable steady state. Again, you can get to that sustainable steady state with hydrogen as well.
I just don't think that batteries in particular are an unsustainable path there.
Jason Jacobs: One clarifying question. So in the applications where hydrogen and can potentially play is its biggest competitor batteries in every one of those cases, or is it completely application dependent?
Jigar Shah: Well, certainly in the areas that we compete, hydrogen doesn't compete with batteries.
And that's because, I mean, batteries are basically, you basically have to fill it with electrons and then discharge it. A lot of the applications that were in there continuously running 24 / 7, and then they might like in the Bloom box case, they can be continuously fed in the plug power case they basically have to stop for two and a half minutes to get refueled once a day.
But otherwise Walmart and Amazon, they're just tooling around and fuel cell forklifts all day. And I think that's important. I think that on the battery recharging cycle, that Gene was talking about, the reason why it matters is because it's not the speed at which it gets recharged. The problem is is that it has to be indoors; the battery technology doesn't like to be in the weather. And so the modern warehouse today, close to four and a half percent of the entire floor space of the warehouse is being taken up by charging. And so, folks don't really propose to move that outdoors. Whereas with the hydrogen, it's all outdoors with a fuel pump, basically, poking through the wall.
And so that's why that you have a 33 day payback. It's not the refueling time.
Gene Berdichevsky: I think that distinction between continuously fed and sort of fill up and use over some duty cycles is a very good one. I mean, if you were running a forklift 24/7 with two and a half minutes of downtime once a day, that is going to be very hard for batteries to compete with for a long time.
Even as we get batteries a lot better in the next half decade, I think it's probably a decade before you get something that takes that head on. But I think it is sort of in those transport cases where hydrogen versus batteries makes the most kind of news and I think appropriately so I think the semi the class seven and eight trucking, that's really where you could see it go either way. I think it's going to be a question of innovation and we'll see what wins out. I think there's other places where, as a fuel, if you're going to carry energy let's say from Australia to Japan in a ship, you're either going to do it through hydrogen or ammonia. If you're not allowed to do it through a carbon-based source. So I think, if you're eliminating the carbon molecules and the carbon chemical bonds and the carbon hydrogen chemical bonds, then you're in hydrogen and ammonia land. You're not going to carry a tanker batteries from Australia to Japan as an energy source.
And I think there's no competition in those kinds of segments.
Jason Jacobs: Given that it sounds like much of the hydrogen that's produced today does come from fossil sources and how important it is to decarbonize that directionally, what does that path look like? What is the alternative, I guess, to fossil based-hydrogen?
Gene Berdichevsky: Jigar, you probably have a better answer for this, but maybe I can add a question to Jason's, which is do we need a carbon price?
And if so, at what price to really make low cost, natural gas have to go to electrolysis for hydrogen?
Jigar Shah: I 'm trying to think of what way to approach the answer. I'd say that, in general, we are always wanting to be in a place where we have excess energy. That's how the human race sort of exists. Is it no one does art or science or anything pleasurable whatsoever, unless you have excess energy.
So we're in a situation where you need excess energy and where we're getting excess energy today, where the energy return on energy invested is the highest, is no longer an oil and gas, which has become harder and harder to find but, in fact, is in renewable energy. So now we're building renewable energy at scale, which is wonderful.
But the challenge with that is that you end up in a situation where renewable energy is not something that's super easy to take advantage of because, to Gene's point, around recharging batteries quickly, because technology gets better in the future, that might be technically possible, but it may be at a time when you have a low production of solar and wind.
And so you may be in a situation where you want to charge your battery really quickly, but the realtime price of power at that point is a thousand dollars a megawatt hour. And so you're in a situation where time also matters. And then, so then the question is, well, do you pair it with another battery so that you can triple charge the battery at all times, then you have battery upon battery upon battery.
And then at some point you're like, wow, that was a really inefficient process. And you're in a situation where you want to try to figure out what to do with all of these excess calories, excess electrons, excess value streams that you're creating. And the beauty of, as Gene was suggesting, of being able to like ship these hydrogen molecules from one country to another. I mean, look at nuclear power.
The reason we have pumped hydro in this country is not because everyone loves storage. We have pumped hydro because we overbuilt nuclear capacity in the 1970s. And people physically didn't know where to put the power and they couldn't shut them off at the time. And so they built pumped hydro storage facilities to use up the excess nuclear power.
Guess what? We could do that now. And in fact, the French used to actually do that and they still have a hydrogen pipeline from France to Germany, which they don't use anymore but they could use again, that basically just dumped excess heat and electricity from nuclear plants into hydrogen. And so part of what I'm trying to get people to focus on is that we're in a situation where...
I mean as somebody who loves solar, wind batteries, all that stuff, I'm certainly not coming out this and that from a negative aspect. But I think that we've gotten a myopic around how far batteries can really take us for all the modern amenities that we want and how much we need the density and the seasonal storage capacity of some of these other fields, whether it's ammonia and hydrogen.
So my sense is that we're stuck right now in sort of an endless do-loop where we're just like, things are going to get better on solar, wind, and batteries, and we don't need anything else. And my sense is that whenever you get into that do-loop, you're always in trouble because people really like diversity.
They like having different energy sources and different energy carriers for different applications because we need a resilient system. And my sense is that level of diversity is going to be valuable.
Jason Jacobs: So what does that mean in terms of the price on carbon? Do we need a price on carbon to get hydrogen production off of fossil fuel?
Jigar Shah: No, we need a price on carbon just because there are a number of people who psychologically can't do anything unless something's priced. And so we just need to do something to help them. I mean, even if you just charge a dollar a ton of carbon like it's immaterial, but once you charge someone a dollar a ton then you have to collect a dollar.
And so then PWC and Accenture and everybody else has to be like, oh crap, we gotta learn how to measure carbon. And then the CFO says, well, why are we paying $173,000? You're like, well, cause you got that much waste in your system. And then people start measuring it. I don't think we need a price on carbon.
And I think there's actually been a lot of data that shows that the price on carbon is no silver bullet. And so ultimately it's one tool in the toolbox. My sense is that what it really is for is this accounting systems. So we know where all the waste is coming from, but if you really want to solve problems, you do it sectorally. And that's been the lesson learned over the last 20 years is you create a "green heat policy"; you create a green transport policy, you create a green electricity policy. You don't solve it with the price on carbon.
Gene Berdichevsky: But it also sounds like the key thing we have to do, I mean I think we all agree, that you're going to get low price renewables or negative price renewables at times, but that doesn't get you away from the cost of the electrolyzers and the systems collecting the hydrogen, storing the hydrogen.
So you really have to drive the cost of those systems down for fuel hydrogen produced, because if you're relying on really, really cheap renewables, you're not getting a 24 / 7; you're getting it a part of the day. And if you're getting it a part of the day depreciating your massive CapEx over a small portion of the day, instead of over 24 / 7 is a real challenge.
Jigar Shah: Not really. I mean, I hear what you're saying on the capacity factor side, but remember the electrolyzers are not tied to solar and wind farms. They're tied to distribution and transmission substations. And so ultimately when wholesale power prices are cheap on the grid, you would charge. In Texas, for instance, the only times you wouldn't charge is something on the order of 200 to 300 hours a year, when you're trading above 20 cents a kilowatt hour, otherwise you would charge.
Gene Berdichevsky: But at those prices, we're still at sort of four or five times the price of natural gas-dervived hydrogen, right?
Jigar Shah: Not really. We're rolling out electrolyzer farms starting next year or the year later. And at three and a half cents a kilowatt hour, average wholesale power price, you're at something around $5 a kilogram, which is all we need for our demand.
And then that price will start coming down. So think about, if you look at Texas and you say what's the year around prices for electrons right now, it's sort of in that 4 cents per kilowatt hour range on the wholesale side. And if you got rid of the 200 - 300 hours that are the most expensive in Texas, it really drops down to like two and a half to three.
Gene Berdichevsky: But aren't we trying to get to below like a dollar per kilo and if you're five and 4 cents per kilowatt hour, are you saying we have to be down at like half a cent per kilowatt hour?
Jigar Shah: Put your brain back into A123 days. We're talking about all of the hydrogen infrastructure I'm dealing with is in the A123 days. So like, let's talk about lithium ion batteries for Black and Decker power tools. That's what we're talking about and how big is that market? A couple of billion dollars. Great. And with that demand, what do you get? Oh, we can build a Gigafactory. We should build our first Gigafactory and then you start having more cost reduction. Oh, we should have a Tesla Power Wall. Why? Just because we need something to fill up a Gigafactory. We don't actually care about residential storage, but we care about is filling up the Gigafactory.
We're just filling it up all day. We don't actually make cars. We just like fill up Gigafactories. And I just think it's still the same point you're making, which is we want the highest possible capacity factor of that factory. And so right now, the way that I do that is through the 200 to 400 tons a day of hydrogen that people ship around the country at $5 to $12 to $20 a kilogram.
But then as I deploy a couple of those units, you'll magically find, oh, here are four incremental improvements we can make to make it cheaper. And then that's what deployment-led innovation is. That's exactly what the batteries have been doing. Every time they build a new Gigafactory. Every time they come up with a new "rev," like it seems to be a little better than the "rev" before it.
Gene Berdichevsky: So I think what you're saying is, if I understand correctly, is that you're expecting the CapEx to drop precipitously as we go up and scale by a factor of 10, a hundred a thousand.
Jigar Shah: Yeah.
Gene Berdichevsky: I guess that's where I'm saying, if you're an innovator, that's where you have to look at, how do you drive that electrolyzer depreciation down the whole system CapEx down.
Cause it's either depreciation... it's either CapEx or OPEX. And OpEx is you can get that down by a factor two or three from if you're already at two and a half cents per kilowatt hour, but it's not going to get you the 10x reduction that you need in the overall cost to generate this new hydrogen. So you really have to go and attack the CapEx.
Jigar Shah: Yeah. Yeah. It's mostly CapEx. But remember, the way that the electric utility grid works is that sometimes you can get other people to pay you for free. The beauty of the system is, if I went to a 1200 megawatt wind farm, and they were told by the grid we have no room for you here and I went to them and I said: "hey, guess what? I can make room for you, if you subsidize the crap out of my electrolyzer at the distribution substation." They might say $1.2 billion project, if I give you a hundred million dollars to build an electrolyzer at the substation, I get the right to build this. Sure, I'll pay that tax because now I get to open it up and for the, whatever it is, 400 hours or so a year that you're not going to let me run the electrolyzer because you're going to get more money by just selling that power wholesale at high prices, then I have an interuptable rate, fine. But the other 8,300 hours a year, I get to run.
That's how this works. Unless you believe that the United States and everybody else is going to build all HVDC lines and everything's going to be super hunky-dory, and everyone's going to plug in wherever they want, my sense is you're going to continue to have these bottlenecks across the grid, and people are going to want to build their 2000 megawatt solar and wind farms into a certain choke point.
And I'm going to say, I can solve that choke point for you. But you're going to have to pay the piper. And they're going to say, you know what, I'm happy to pay it because otherwise I can't build my farm.
Gene Berdichevsky: A little bit of financial wizardry will go a long way.
Jigar Shah: That's how I make my money, my friend.
Jason Jacobs: I have a couple of, kind of, wrap up questions.
But before I go there, just one other clarifying question that I had as I'm listening to you guys go back and forth. Did I hear correctly that in order to believe in a longterm hydrogen future, I need to believe in a longterm future for natural gas as a staple of the energy mix?
Jigar Shah: Well, it's not about natural gas. It's about what natural gas represents. I mean, natural gas represents a very low cost way to transport fuel via pipeline to provide direct heat or to be able to support industrial processes. And in a way that in general electricity really hasn't been able to break through cost effectively. And so I think the question really becomes, as Gene's work continues and the cost of everything comes down, are those applications all going to be fed by the electrify everything movement? Or is there going to be a need for there to be onsite hydrogen production in those places? Cause remember where these industrial facilities sit is where the choke points are in the grid because the grid was built around these industrial facilities.
And so, co-locating these electrolyzer facilities at industrial facilities is actually a great idea because the grid's already set up to do it. And so, it's just one of those things where I feel like people fixate a lot around natural gas right now because of methane and 22x CO2 and how we have to get off of natural gas.
But I think that we have to instead focus on what are the qualities of that, that people really crave and need. And how is it that our innovation today is actually offsetting those requirements because that's when people are gonna get rid of natural gas and replace it with something better.
Jason Jacobs: It sounds like from your standpoint, Jigar, the answer is yes, natural gas will continue to be a part in order for hydrogen to get off of fossil fuel.
And what about you, Gene? What's your perspective?
Gene Berdichevsky: I would frame it a little differently;I think that natural gas will be one of the last things that hydrogen goes on to replace because it is so cheap and because it is one of the cheapest sources of hydrants. So as you get electrolyzers and green systems on the grid, so to speak, they're going to go to higher value application first, and those higher value applications are going to be because you can co-locate them in certain places like Jigar is talking about. You're not going to go straight to replacing hydrogen made from natural gas.
That's going to be one of the last things, because it is so, so cheap. So it's not that you have to believe in natural gas continue to be a part of the energy mix because you need it to make the hydrogen economy go. It's just that it's really, really, really hard for green hydrogen to go replace it.
Because it's so low cost; because the systems are so well dialed in. I think you're living with it for a while, while hydrogen's developing on higher value systems. You can think of it as what Jigar is describing is much like Tesla made the Roadster, which was a sports car and that let it make the Model S which was a luxury car.
And eventually, eventually, eventually you start to get to the mass-market vehicles. And you can think of all the $130 billion of hydrogen we produce every year globally from natural gas as the mass market, and it's not clear how far away that is. And maybe I shouldn't be so skeptical of innovation because I think we could probably figure out a lot to do in electrolyzers and bring down that CapEx.
But it's going to take us probably a couple of decades before we get the technology needed to replace that piece of it, if we do it at all or we might have to find other ways of doing it.
Jigar Shah: Not unlike lithium ion batteries.
Jason Jacobs: I covered this question with each of you guys in your episodes, but with very different contexts.
And that is the role of the fossil fuel companies in this next era, because if hydrogen comes from the fossil fuel companies today, does that mean if you're long on hydrogen you're long on the fossil fuel companies taking us into this next era?
Jigar Shah: Well, I'd say it in a different way. I'd say that the question is, is it where are the sort of pockets of cash and expertise in the system?
And can you give them something better to do than what they're doing now? One of the big pockets of cash right now are natural gas utilities who literally have no idea what to do going forward. I think a lot of this hydrogen work is something that they could rate base all day long. And I think they would actually love to play that role and it would become a more productive and more useful role than just getting beat on all day on electrify everything.
And so you could see a huge role being played there, but the same thing is true with the oil industry. The oil industry is getting beat on all the time. They want to try to find a more useful role to play. And one of the things that they're really good at is handling hydrogen. The safety requires and all the other things around handling hydrogen is not easy and the oil majors are really good at that stuff. And so my sense is that you will see a role for them. Now, will they actually step into that role? I mean, every time we've laid it out for them in the past, they've declined to step in and we've had other actors step in and do that role for them.
But maybe this time will be different. It does feel like the same things in a more bold way than they have before.
Jason Jacobs: Gene?
Gene Berdichevsky: They should play a role. I'm with Jigar; I'm not sure if they will or won't, but they should play a role. And I think there's a role to play from making massive infrastructure. And again, if you sort of take nothing else away from my discussion here, it's not necessarily the hydrogen economy.
It might be the ammonia economy. The same thing rings true. You need massive infrastructure. You need to be able to transport this stuff. It plays to their wheelhouse more so than making battery materials, for example. Where it does not play to their wheelhouse.
Jigar Shah: The one other thing, I'd say, Jason, is we didn't really cover this but just to make sure everyone's heard it. I'm certainly not of the mindset that personal vehicles are going to be hydrogen powered.
I think that's a really dumb application for hydrogen. I think that we did talk a little bit about the heavy truck segment and whether there's actually some role for hydrogen to play there. The one thing I would say is that there is no such thing as a fuel cell powered vehicle. All vehicles are battery electric vehicles.
The fuel cell in the case of a battery electric vehicle plays a range extender role in the same way that you have a series hybrid. And that series hybrid could be concocted so that it's recharging the battery with gasoline. It could be recharging the battery with diesel; it could be recharging the battery with the fuel cell.
And so that's the role of hydrogen it's as a range extender. And the reason you would do that is because, instead of carrying three tons of batteries around to be able to get an acceptable range on a Tesla semi, you might say, well, let's only put in a half a ton of batteries. And then the rest will be a fuel cell with hydrogen because this particular application, let's say it's a delivery vehicle or whatever, can actually usually make its routes on 45 miles.
And every once in a while, it needs to go 200 miles. And so there's no need to outfit it with a 200 mile range battery when it's mostly going 45 miles. So those are the kinds of applications where hydrogen even plays a role in that level of transport. I don't see for ground transportation there being a BEV versus fuel cell showdown.
Gene Berdichevsky: I feel like this is a tee up for something that I've dealt with a lot in my career. I appreciate Jigar saying there is no such thing as a fuel cell vehicle, because it has a battery to take that electricity and drive the motor. And a battery tends to be pretty big and something along the lines of hybrid vehicles.
So elegant in the conversation...range extenders, the Chevy Volt. They sound so elegant, but the reality is that despite having the best features of both worlds, what they actually carry is the worst challenges of both. And what typically happens when you design hybrid vehicles is they end up being kind of neither fish nor foul.
So I'll give you kind of a fun fact, when we were initially doing the design work on the Tesla Model S for a period of time, we considered it being a plugin hybrid vehicle. And we figured out what it was going to be way too heavy, way too complex. It was going to have really crappy mileage when you switch the battery off and it will cost way too much.
And so that was quickly scrapped. It was sort of a very early conceptual thing at that same time. Fisker came out and announced the Fisker Karma, which was exactly that: a luxury hybrid vehicle that went on to be too expensive, really inefficient when the battery turned off, sold almost no cars and ended up going bankrupt.
And so I've designed hybrid vehicles. I've tried to design hybrid vehicles. You can look at the GM Volt, which has now been shut off. They don't make it anymore. Hybrid vehicles end up being neither fish nor fowl. And I think key thing will be maybe there'll be a transition period. But I think that's where batteries ultimately keep getting pushed and pushed and pushed to get rid of that whole second system, including incentives.
And I think all transport ends up being battery electric or at least that's my goal.
Jigar Shah: Yeah. I could probably agree with that.
Jason Jacobs: I feel like thus far we've talked about batteries versus hydrogen exhaustively, but one thing I may have missed it, but I'm not sure if I heard your perspective Jigar when it comes to hydrogen versus ammonia.
Jigar Shah: It's not something that you would compare with each other. I mean, hydrogen is a fundamental building block. And when you have a low cost version of a fundamental building block, making it into ammonia is super simple. So it's not about hydrogen versus ammonia. I mean, a lot of people have said that we should focus on ammonia mostly because the supply chains have been already paid for.
I mean, you could ship fertilizer into the central part of Africa without a lot of problems because they have been doing it. Whereas moving hydrogen into the central part of Africa may not be as easy. And so I understand why the fixation on ammonia and it actually makes a ton of sense. I don't think we're arguing about that point.
I think the part where I'm arguing is that there's a lot of people who look askance to hydrogen as an energy carrier. And to me, I think that that shows a level of naivete around how the energy industry works. The notion that one approach battery electrons is going to meet the energy needs of a modern economy across all sectors is just laughable in the same way that, when people like insinuate we're going to be a hundred percent solar powered, I punch them in the face. Does it make any sense? Why would you do that? Why would you be so dumb? We need geothermal; we need hydro. We need all sorts of technologies. And it's through that diversity that we actually get resiliency and strength. And so I think hydrogen has as a critical role to play.
There's $90 billion of projects that are getting funded around the world right now in hydrogen, which is not a small amount of money. I mean the total amount of money being put into solar and wind right now around the world is only about $200 billion a year. So it's not like hydrogen is small potatoes right now.
And I just think that. Instead of bringing our best and brightest to all of these different solutions that are required to decarbonize the world. We allow people to sort of pit each other against each other and cause it's fun. It's fun to like talk about Elon making fun of fuel cells. Or it's fun to talk about this guy talking badly about lithium ion batteries.
But my sense is is that what we're all going to come to appreciate is that hydrogen as a molecule has an essential role in decarbonization.
Jason Jacobs: So it's January of 2021 and the new administration calls each of you up and ask for your input in terms of one longer term initiative, as it relates to hydrogen that should be put in place.
And one thing that should be done in the first hundred days to have an immediate impact, what do you say?
Gene Berdichevsky: I think for the longer term you want to go with innovation. I think he needs to figure out how you bring down the cost of electrolyzers further. In the short term, I would actually put some weight towards figuring out what you can do with ammonia, for some of the challenges that we need to deal with.
It allows and creates that pull if you want green hydrogen. But I think there's a lot you can do with it for seasonal storage applications. And I think it's something that hasn't gotten kind of the attention that is needed.
Jigar Shah: I'd have a mandatory conversion of all marine vessels, covered by the Jones Act, that transports goods and services from Baltimore to Charleston and vice versa and to hydrogen. Today, it's super simple. It's super cost effective. They're already converting ferries to this kind of technology. It's off the shelf. You just saw the announcement between Bloom and Samsung Heavy Industries to power entire transatlantic shipping that way. So my sense is that's a easy near term application to just start deploying at scale.
Jason Jacobs: And what about longer term, Jigar? One longer term initiative.
Jigar Shah: As we've talked about earlier, I think that the ability for us to manage all of the excess production on the grid right now is severely hampered. There's lots of smart grid technologies from smart wires to dynamic load ratings, to lots of other things that you could do to double the total amount of renewables in the grid now. But the notion that we're going to build a macro grid with Bill Gates' money on HVDC lines is nuts. And I want it to happen, but the notion that we're ready to do that is nuts. And I think hydrogen is gonna play a key role in figuring out what to do with all that curtailed power and figuring out how to make it more productive, whether it's ammonia for fertilizer or whether it's something else. Having all of it just get curtailed just seems like it's going to slow down our conversion to renewable energy.
Jason Jacobs: My last question is just I figured it'd be fun to do a little prediction time because it's one thing to believe that something is the right path and it's another thing to be confident that that's actually the way things will materialize. So, if you we're a betting man and you look 10 years out, where does hydrogen sit at that time? What applications does it play in, how pervasive is it? What do the economics look like? Where do we sit? 10 years from now.
Jigar Shah: Well, I am a betting man, because we're putting the balance sheet of Generate Capital behind projects that don't pay me back for 25 years. So we make bets all the time. And I think that you're going to see, let's call it a billion dollars with a profitable ways to deploy capital in the hydrogen in the U S every year for the next 10 years.
And I think largely that's because of curtailed of renewable energy. I think it's largely because of the forklift market. And it's largely because of these high cost applications that I think then we'll take the R& D that Gene's promoting and puts it into a deployment led innovation price reduction curve.
Gene Berdichevsky: And I would say, I think 10 years from now you'll have hydrogen will both be huge and small, huge on an absolute basis as Jigar said sort of billions of dollars. And I think small relative to lithium ions and some of the other areas by a factor of 10, but that's still nothing to sneeze at. And you have to do all of the above.
It's not a question of does this win out over that? There are places where hydrogen will make more sense or ammonia, and I'm betting with my career that lithium-ion is going to be 10 to one on that.
Jigar Shah: I hope you never quit your day job, Gene. You're doing great.
Gene Berdichevsky: Thanks, Jigar.
Jason Jacobs: Well, this was great guys. Is there anything I didn't ask that I should have or do either of you have any parting words for our listeners?
Jigar Shah: Only partying word is just that, look, this stuff gets complicated and don't get overly tribal. I think that there are going to be a lot of trends that are obvious today and a lot of trends that are less obvious than the future, but I think we need to support all of them because without it, I think we just have no shot at decarbonizing at the speed and scale that climate change requires.
Gene Berdichevsky: I'll double down on what Jigar just said there. I think we need everyone pulling all the oars.
Jason Jacobs: Well, that's what I like about you guys is that you each have your opinions, but you're also pragmatist and you both believe that more is better. So anyways, I really enjoyed this. This was awesome. Thanks so much for being good sports and trying out this new format and coming back on the show.
Jigar Shah: Thanks for having us, Jason.
Jason Jacobs: Hey everyone. Jason here. Thanks again for joining me on My Climate Journey. If you'd like to learn more about the journey you can visit us at MyClimateJourney.co. Note that is ".co" not ".co". Someday, we'll get the ".com" but right now ".co". You can also find me on Twitter at @jjacobs22, where I would encourage you to share your feedback on the episode or suggestions for future guests you'd like to hear. And before I let you go, if you enjoyed the show, please share an episode with a friend or consider leaving a review on iTunes. The lawyers made me say that. Thank you.
