The Limits of Electrifying Everything

In this episode, Anthony Wang, co-founder of ETFuels, describes his company’s business model of using renewable energy to make green hydrogen, then using the hydrogen to make carbon-neutral methanol.

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David Roberts

Anthony Wang, a mechanical engineer by training, spent years as a researcher on hydrogen technologies. He worked with governments to develop policy and infrastructure plans — he was project manager on the EU's big hydrogen backbone project — and with private companies like Total and Shell to develop hydrogen technology roadmaps. He has authored or co-authored several industry-defining reports on hydrogen and been cited in countless publications.

A few years ago, he decided to throw his hat in the ring and try to actually build hydrogen projects in the real world. All his research and contacts in the energy world led him to a very specific — and, to me, extremely intriguing — business model.

ETFuels, the company he co-founded, develops projects that couple giant off-grid renewable energy installations with hydrogen electrolyzers; it then uses the resulting green hydrogen to synthesize carbon-neutral liquid fuels. (First up is methanol for shipping, but the company plans to branch out into other e-fuels.)

This model somehow manages to implicate half the stuff I’m interested in these days — green hydrogen, markets for hydrogen fuels, off-grid renewables, coupling renewables directly with industrial loads — so I was eager to talk with Wang about it. We dug into the limits of “electrify everything,” the difficulty of transporting hydrogen, and the economics of e-fuels, among other things.

This one gets fairly deep in the weeds, but if you find the real-world challenges of developing clean-energy projects interesting, you don’t want to miss it.

All right, then, with no further ado, Anthony Wang. Welcome to Volts. Thanks so much for coming.

Anthony Wang

Thank you so much for having me, David.

David Roberts

So you were sort of recommended to me as somebody who knows a lot about hydrogen, about sort of green hydrogen, the markets. I know you've worked with public on policy roadmaps. I know you've worked with private companies on technology roadmaps. So I know you've given a lot of thought and sort of analysis to the green hydrogen phenomenon, the green hydrogen market. And you settled when you decided to start a company of your own, you co-founded this company, ETFuels. You settled on a very particular business model, which I just find sort of fascinating as it sort of implicates half the things I'm interested in these days in the energy world.

So I wanted to just run through it with you and talk about why you made the choices you did and get into some of the bigger issues that way. So just for listeners' benefit, the idea here is you find a big piece of land somewhere out in the middle of nowhere. You build a bunch of renewable energy, mostly solar, maybe some wind. Instead of hooking the renewable energy up to a grid, you pipe it directly into electrolyzers and make green hydrogen out of it. And then instead of exporting the green hydrogen or selling the green hydrogen, you use the green hydrogen, combine it with CO2 to make methanol, basically, carbon-neutral methanol, which you are then going to sell to shipping companies. So that's a big puzzle. That's a big puzzle with lots of pieces put together. So I want to kind of start at the front end of it. My intuitive reaction to this is you're taking valuable renewable energy and then you're converting it to hydrogen, you lose a lot in that conversion, and then you convert it again to methanol and you lose a lot in that conversion as well. It sounds sort of inefficient.

So the question comes up like, why not just sell the renewable energy? So why off-grid in the first place?

Anthony Wang

For us, obviously, it depends where you're talking in the world, right? So renewable energy, if you can get it connected to the grid, you're completely right, it's extremely valuable. I mean, you've seen what prices of power have done in the last couple of years in Europe and in the US. And if you can use it to electrify your vehicles or heat up a heat pump, that's a very good use of that renewable energy. That said, there are many places in the world where solar and wind, on a levelized cost of production basis, are the lowest cost sources of energy we have.

And on top of that, most of these locations are not connected to grids. And so one question that always puzzled me a bit was everyone's talking about renewable energy getting cheaper and cheaper and being the lowest cost source there is. So why, why aren't we seeing that being reflected at all in, in the prices that we see a) on the wholesale market, and b) ultimately on our bills at the end of the month? And thought a lot about this, and I'm not an economist, but it does seem to me that while we've got very good at producing renewable energy in a very cheap way, I'd argue it's the cheapest that we've got.

We seem to have made a lot less progress in transporting, storing and balancing that renewable energy in a way that meets the consumer when they need it, where they need it. We know also that the energy transition is going to put this massive strain on power grids. Today we transport about 20% of our final energy through the grid. And in a fully decarbonized system, I mean, depending who you talk to, that number should be going up to 60, 70, 80%. We should electrify as much as we can. But that also means that we need about three, four, five times the number of cables, transformers and substations.

And right now the grid does not seem to be set up to deliver that. And so we wanted to marry that problem in a way with an opportunity that we saw in producing hydrogen. And obviously, when you lose 30% through energy, conversion losses. That's a huge deal if your power is super valuable. It's a lot less of a big deal when your power is virtually free, depending on where you are.

David Roberts

So sort of to summarize that renewable energy itself at the point of production is super cheap, but all these balance of system costs, mainly transmission and distribution, end up boosting the cost anyway. So your idea is just to use the cheap renewable energy and avoid all those other costs. Basically just use the cheap energy directly and not have to pay those additional costs?

Anthony Wang

Yeah, exactly. And cost is quite a simple way of capturing it. But there's lots of other things right in projects it's also time. The biggest risk in developing renewable projects is often getting the grid connection permit. I think, not to bash too much on the grids, I've got lots of good friends there, but the numbers speak for this. So if you look at the US, I think the Berkeley National Lab found there's a two gigawatt backlog or 2000 gigawatts, sorry, of PV, wind and storage.

David Roberts

Yeah. Terawatts.

Anthony Wang

Terawatts, exactly. Which is like almost double of the installed capacity base today. And you see similar numbers in Europe. And the cost of interconnection, the deposits that developers are asked to put down are twice what they used to be. They can be almost as big as your CapEx of your solar project. So it's lots of things that have come together that are just making it very difficult to connect the phenomenal amounts of renewables that are available to the demand where it is.

David Roberts

So, I'm curious how you see this playing out. Because the enthusiasm is for electrifying everything and as you say, that's going to mean like four or five times our grid capacity and nowhere that I know of is a shining example of how to build grid capacity that much, that fast. I don't know that anyone's doing it. So, do you think that is going to be a serious constraint at the macro level on electrifying everything? Do you think that's going to push a lot of activities to this sort of off-grid model?

Anthony Wang

We hope so. At ETFuels we're definitely pushing it. Look, I've got nothing against the electrify narrative. I think it makes total sense and where we can, we should. But the reality is that it's incredibly difficult. I mean, we're finding this ourselves. We're trying to develop projects which are in the middle of nowhere. And even there, permitting and consent can be a challenge. So, imagine building a transport cable that crosses the entire country. These transmission highways in Europe, we're talking about the European super grid. Governments are trying to kind of coordinate about who gets what space in the North Sea.

We're talking about kind of hydrogen backbones that should cover the entire continent. And you can just see the political and practical implementation challenge of doing projects like that I think. I was working closely on a hydrogen pipeline project between Spain and France, these countries putting a pipe through the Pyrenees. I think now they've landed on kind of putting it through the Mediterranean Sea and said, you see presidents shaking hands about which pipelines should happen and then it still takes eight, ten, twelve years before they're actually implemented. So, I think it's a question of let's do everything as much as we can and whichever one gets to market first, you should have some merit to that.

David Roberts

Regular listeners will know that. I'm sort of fascinated by this question. We had John O'Donnell from Rondo, the heat battery company on and that's sort of his thesis of his company is kind of the same logic. The grid constraints are going to push a lot of renewables off-grid. Basically, they're going to be coupled directly with industrial applications and just skip all the grid stuff, which I find a fascinating trend. That's one of the reasons your kind of business model caught my eye. So then you're generating all this variable renewable energy which notoriously comes and goes, waxes and wanes, sort of out of your control and you're using it to make green hydrogen.

So part of the conventional wisdom that I always hear is that's a bad match because electrolyzers need to be run a lot of the time to pay off. Basically to be worth the investment, they need what's called a high capacity factor. And if they're sort of tied to variable renewables, how do you think about that problem? Have you thought about putting anything in between them? This is the heat battery question again. Have you thought about putting anything in between them to smooth the supply of the energy to the electrolyzers? Or is a lower capacity factor just a cost you think is worth bearing?

Anthony Wang

Yeah, a really good question. Obviously when we started the business that was probably the first question that we looked into because obviously we're only doing this because we think that we have a commercially viable proposition and we can provide hydrogen at lower cost than what is currently available on the market. And fundamentally when you look at this equation, you're kind of balancing three variables, right? You've got on the one hand, your cost of power. Secondly, you've got the number of hours that you're able to run your kit on that power, which obviously is lower with renewables.

And then the third is just the cost of the kit itself. So let's say the CapEx of the electrolyzer and the cost of balancing the power. And when we look at modeling this out across the year, there are places in Europe, in the world where your renewable energy wouldn't be producing often enough for this to be worth it, right? So if you only have a solar production model in the north of Europe, then it's probably not going to work. You can't run your electrolyzer for 1000 hours a year and hope it to make money but there are also places where it definitely can work.

And you're seeing lots of projects these days which actually combine solar and wind together in these types of hybrid configurations. And that's useful, one because they're not entirely I mean, so wind is a bit more expensive, but it runs a bit more often. But then on top of that, depending on where you are and there are special deserts where this is particularly the case where the wind and solar production hours actually very anticorrelate very well, where you essentially have solar during the day and then wind which mainly blows at night, not exclusively, but mainly at night. And when you combine those two, you can get very, very steady profiles up to 5500 hours a year of essentially base load production.

And when you spread that across an electrolyzer, and especially obviously today electrolyzers are still quite expensive, but going forward their cost will come down. You'll see that the numbers actually pan out very well. And when we've done the math, we come to conclusions where depending on the power that you're using but if you're comparing a hybrid solar wind project in, let's say, the deserts of Chile or in the Middle East or in Western Australia, you can easily get to production costs of hydrogen that are 40% lower than if you were using grid connected power, paying essentially wholesale prices in Northern Europe. So that's on the economic side.

Then there's of course the question around can the electrolyzer even run flexibly?

David Roberts

Right.

Anthony Wang

And this is a bit more of a technical question. Obviously, you've got different technologies. You've got PEM, so the Proton Exchange Membrane electrolysis, and you've got alkaline ones. PEM is more flexible. But even the latest kind of pressurized alkaline models are able to run flexibly depending on their ramp rate. The specific model, you may need to add a small battery in between. But in principle you don't need to run, especially if you got 6000 full load hours from your renewables. You're mainly looking at balancing on the kind of second to minute level and the technologies that are on the market today can handle that.

So you don't need any additional storage. It's more of just a pure economic thing. If your power price is low enough and your hours are good enough, then you can make it work.

David Roberts

Right. So two things: You go to places where a hybrid renewable system can actually reach relatively steady production and then you go to places where the power is super, super cheap. So what about electrolyzers then? Let's talk about electrolyzers because you're saying you're going to produce green hydrogen that's cheaper than what's on the market. Is that purely because the power you're making it with is going to be cheaper? Or is there something about your electrolyzers that is special?

Anthony Wang

Yeah, and just to clarify, so when we say our green hydrogen is cheaper, I'm comparing to other green hydrogen projects, not the fossil hydrogen projects that are of course hydrogen that's on the market.

David Roberts

Brown or —

Anthony Wang

Yeah, exactly.

David Roberts

gray or whatever the hell.

Anthony Wang

So, that stuff's definitely cheaper at the moment. So for us, the innovation is not in the electrolyzer technology itself. We're not an equipment supplier or manufacturer with our own technology. Our development IP, I suppose, is in the integration of the different technologies. So we haven't really spoken about the methanol component, we'll get there. But what we essentially do is we find the optimal end-to-end project configuration that makes the economics work for the final offtaker. Because we start with what is the price that we need to hit for our final product, which is methanol, we'll talk about, it can be a bankable commercially viable product.

And then we work backwards. So then we reverse engineer. Okay, what does that mean in terms of the electrolyzer size? What does that mean in terms of the hydrogen storage size? What does that mean in terms of the solar to wind ratio? What does that mean in terms of the battery if you need to add one? And so what we've done is we've optimized that end to end. And what you'll see is that you might have to do some slightly unintuitive sizing decisions from an engineering perspective. So that's kind of where our added value sits. And also just in terms of the development of those individual pieces of the project and pushing them forward at the same time.

David Roberts

Yeah, I'm wondering how much now because even if you have a hybrid renewable system, I'm wondering how much sort of overbuilding you do to try to boost that capacity factor. Like are you overbuilding and throwing away a lot of power just because it's so cheap?

Anthony Wang

Yeah, we do a little bit of that. So maybe a couple of things. So a typical project for us, what that looks like we're actually developing in Europe and in the US. So in the US, a site will be very big, 8000 acres, which is 8000 football pitches. European ones, I think the American ones are half the size it's like 8000 ... Anyway, you get the point. It's huge. And most of that's earmarked for onshore wind. So about 6000 acres is onshore. Turbines are spaced far apart, so you need a lot of land. And the remaining 2000 acres is a mix of solar PV and the process plant itself.

And that will give you about, I mean, these are rough numbers, but about 200 to 300 megawatt of onshore wind, one to 200 megawatt of solar PV. So you're looking at a combination of, let's say 400 renewables. And then we would probably put an electrolyzer that's around half the capacity next to that. So a 200 megawatt input electrolyzer. And that sounds like a very big delta. But actually, if you look at lots of the studies that have been done, they come to similar conclusions because you don't end up curtailing anywhere near half of the power you end up curtailing only a fraction of what you produce because there's only very few hours where both the solar and the wind are producing at peak.

David Roberts

Right.

Anthony Wang

Maybe just to complete the picture of the project. So that produces about 20,000 tons of hydrogen a year, depending on your load factor, which is a lot of hydrogen. That's I think the equivalent of about 30'000 to 40,000 Tesla Model 3 batteries in a day that's getting produced.

David Roberts

So the electrolyzer part to you is mostly just a commodity at this point. When you're looking at big cost centers like the big CapEx and OpEx costs, where are the big costs here? Like, are the electrolyzers themselves a big cost center or is it all down to kind of the cost of the power? Is that the biggest variable?

Anthony Wang

It's about 50/50. I mean, for us, we have kind of a renewables plant or part and then a process part, and it's about 50/50 between the two, the electrolyzer representing the main component of the process part. We've been doing a lot of, say, electrolyzer shopping in the last couple of months and you're probably wondering how that's going.

David Roberts

I am quite curious about what you're seeing out there in electrolyzer land.

Anthony Wang

Yeah, the reality is no one has actually built and constructed a 200 megawatt electrolyzer to date. It's not because electrolyzers are a risky technology, we've had them for hundreds of years. But at the scale that we're talking, we haven't really got that much experience. Even the biggest technology OEMs don't. And so as much as there is a big boom in the hydrogen space, I think for me personally, it's been quite a sobering experience being in the market, actually trying to procure these pieces of equipment because —

David Roberts

Is the hype getting a little out ahead of where the market is?

Anthony Wang

Obviously there's the hype and then there's the reality of getting things done on the ground. It's not that I'm disillusioned by what I've seen. It's more that you just realize that there are so many practical implementation considerations that you haven't thought of, right. Well, one is on pricing, obviously, because there's very little, very few of these projects have happened. There's not that much price liquidity and so no one really knows how much this stuff costs. Not even the EPCs who are meant to build this really know. So everyone's trying to figure it out. People are also aware that there are subsidies, so everyone's trying to make sure that they don't leave a penny on the table in terms of how they price their kit.

And obviously you can imagine if everyone does that, then your economics go out the window. So that's on pricing and all the electrolyzer OEMs know the game and they're kind of looking to find a way to play into that. And then in terms of the actual technical and implementation challenges, ultimately this is going to be a process plant, right. This project is going to look a bit like a refinery. That means that every single valve needs to be lined up, every single power cable needs to be at the right voltage. And especially in our case, because we're off grid, for example, when you try to run your entire renewables to electrolyzer without — in the engineering terms, I think they call it like clock — you don't have a base frequency that you can follow, you end up having to create your own kind of grid stability. And that brings it with a bunch of challenges around frequency, voltages, harmonics.

David Roberts

Right? You're not getting any of those grid services. You kind of have to do all that yourselves.

Anthony Wang

Yeah, so turbines, usually they're connected to the grid, so they just follow the frequency of the grid. Whereas when you don't have that, you need to create it yourself and then your electrolyzer is there, kind of disturbing it a bit because it's not entirely efficient. And so there's lots of day-to-day engineering challenges that we need to overcome that, I at least, had not expected when we started this.

David Roberts

Yeah, it does kind of seem like the mother of all optimization challenges you've taken on here. There's like so many variables moving at once. So you feed this cheap power into electrolyzers and just one last question about electrolyzers. Just from looking around in the market and your general sense of things, are you anticipating or do you feel like the sort of market is anticipating, substantial reduction in those costs or is that just kind of a fixed piece in the middle of this puzzle?

Anthony Wang

Yeah, good question. Obviously, when I speak with our suppliers, I always ask them because I hope that the prices that they give me today are not reflective of where they hope things will end up in the future. So today, they're obviously not pricing in that cost reduction. That said, all of them are very optimistic about the price reduction and usually, especially on the PEM side. I mean, when you talk to the PEM electrolyzer suppliers, they tell you that the reason they chose that technology is because it just has a lot more cost reduction potential.

And you've got lots of levers there, right? You've got the raw materials themselves switching from the very precious ones to the slightly more common ones and that'll obviously reduce the cost. Then the second one is purely in terms of the design. So lots of the OEMs are trying to figure out ways to modularize not just the stacks and the core kind of arrays of the electrolyzer so the area where the hydrogen gets produced, but also the balance of system and the balance around that stack. So the purifiers, the transformers, rectifiers.

David Roberts

Right. All that stuff is still pretty bespoke at this point, right, for big electrolyzers?

Anthony Wang

Yeah, it is. And this is where the traditional OEM kind of equipment manufacturing model slightly overlaps with what traditionally an engineering company would have done. So the big EPCs would design stuff and engineer stuff to order rather than having prefabricated productized modules. But what you're seeing is that the intent is for electrolyzers to really follow what wind and solar have done, where in the future, if you need an electrolyzer project, you're not having to engineer for a year to find the right size of purifying tank. But you can just call up an OEM and they'll deliver you something that essentially comes out of a box.

I mean, I'm simplifying, but that's the idea.

David Roberts

Yeah, something containerized.

Anthony Wang

Yeah, exactly.

David Roberts

And if those cost drops manifest, will that be a substantial piece of making this kind of model viable in more places? In other words, is that a big lever or how big is that electrolyzer cost relative to say, the renewables on one side and the methanol on the other?

Anthony Wang

Yeah, we have our projections for this obviously. So we have our power part and our electrolyzer part. Obviously, we're more optimistic about the electrolyzer part coming down further. We don't expect renewable. I mean, there may be perovskite solar panels, you may have some thought on that, David, but on the renewable side, things will happen as they do. On the electrolyzer side, obviously, this is a huge part because when you think about that equation of cost of power, cost of the electrolyzer and then the number of hours as you reduce the fixed cost of your electrolyzer, the incremental impact of your cheap power just becomes even greater.

So all the benefits that you get from going to the cheapest places in the world so your windy deserts just get magnified and you will get to a point where whereas today you use your power, let's say it's 50 kilowatt hours per kilogram of power that you need to make hydrogen. That efficiency conversion factor, when you reduce the cost of the electrolyzer, it'll make a huge difference to the economics for sure. We're very bullish on that and we're hoping that those costs come down but we're not relying on it. And our first project probably won't be benefiting from a lot of those cost reductions.

David Roberts

Right. And of course, there's also just scale and learning.

Anthony Wang

Yeah, of course.

David Roberts

Just the natural cost declines that come with more people buying more electrolyzers which I assume is going to be happening soon. So then you synthesize this green hydrogen and then the question is why not just sell the hydrogen? Why not sell the green hydrogen? It's pretty precious these days, a lot of people want it. Why not pipe or truck or however one carries hydrogen to customers? Why the third step?

Anthony Wang

When we started this business we probably thought of two main challenges. One was excessive production costs and then the second was kind of the midstream transport challenges. And on the production costs, we've kind of covered that but to the midstream challenges. So maybe just as a bit of context. I spent my entire career in hydrogen and green molecules, working with power utilities, oil and gas companies. And at one point I actually led a project called the European Hydrogen Backbone, which was an initiative by the gas TSOs, the pipeline network operators in Europe to try to repurpose their pipelines from natural gas to hydrogen.

I'm a mechanical engineer by training. I spent a lot of time doing hydraulic modeling of pipelines and compressors at the time, and I learned quite quickly that hydrogen is a relatively leaky gas. It's not the easiest to move around, and it's also the reason that we don't really transport or store it at large scale today. It's not that you can't do it. You can. But the economics and the practical details of implementing it become quite challenging.

David Roberts

Yeah, just to pause there since you were just talking about having studied it, because I'm really interested in this question. When gas infrastructure companies talk about this, I've seen two things. One, I've seen mixing some hydrogen in, right, just sort of lower the carbon intensity. And then there's discussion of just turning the infrastructure over to hydrogen entirely. And my question is, just from an engineering standpoint, are those pipes ready for hydrogen? It seems like hydrogen is a lot harder to hold onto than natural gas. And there's thousands of miles of these pipes. Are they just going to work or is this going to be a thing where you have to go through the whole system and sort of fortify it?

Anthony Wang

Yeah, it's a good question. And I mean, just on blending and repurposing. So in Europe, the discussion is mainly on repurposing. So fully converting, not blending hydrogen into gas pipelines. I think it's a bit depending on the political environment where you are in Europe, blending is not really seen as a viable solution. The energy impact is tiny because hydrogen is less dense than natural gas. So when you blend like 10%, I mean, there's only a fraction of that on an energy basis.

David Roberts

Yes, I mean, I think it's just a political fig leaf here. I'm sure it'll go away once the practical challenges become more clear here too, I think. But at least right now, natural gas companies are kind of waving it around as one of their "Please don't kill us" ideas.

Anthony Wang

Yeah, that's on blending. Just to clarify on the technical viability of repurposing, I mean, in Europe, they've actually done a lot of work on this and a lot of good work. I mean, the German TSOs have just had DNV GL, a very reputable engineering company, look at this and they essentially conclude that just on this, you do need to actually go through each single pipe and look at whether it's ready or not. So it does take a lot of work to do. But in Europe, the pipelines are in a very good state and you can repurpose them, but it will come at a cost. Mainly, at least currently, with the way that the codes are set up, is that you need to derate them. Which means that whatever pressure you are operating the natural gas pipeline at, if you want to operate it for purely hydrogen under the current safety standards, you have to lower the pressure. And when you look at the hydraulics of hydrogen, you really don't want to be piping it at low pressure because it just becomes very expensive. And so on the per kilometer or mile transported per megawatt hour, it becomes quite expensive.

David Roberts

It's just more manageable at high pressure.

Anthony Wang

Well, you want to store it at high p... So because hydrogen is a lot less energy dense than natural gas, to get the same energy content throughput, you need to compress it more and transport it at much higher velocities. So when you don't do that, you end up, kind of like, transporting hydrogen, but very slowly. It's a bit like a congested motorway. And so in terms of value for money, obviously you get a lot less throughput and capacity of transport. That's the main reason.

David Roberts

Do you think, I mean, in Europe, I suppose, is probably the most promising place of anywhere, that this is actually going to happen on a timeline that is meaningful? Or alternatively, are a lot of green hydrogen projects going to end up doing what you're doing, which is basically being off the hydrogen grid, converting hydrogen before you ship it out? I'm sure there'll be some of both. But how bullish are you on hydrogen infrastructure generally? Pipeline infrastructure?

Anthony Wang

Well, we've not bet our company on it. That said, look, I mean, I wish them the best, right? Obviously it's a hugely ambitious project and I think that they're making progress. But ultimately I wouldn't want to for our projects and the ones that we're trying to raise financing for. The argument that you've got a business case because 5-10 years down the line there may be a hydrogen pipeline that comes in and it's the same for CO2 infrastructure, really. I mean, it's just not going to fly when it comes to raising debt financing for a project of this size.

David Roberts

And there's no practical way for you to build a pipeline even if you wanted to. So are there even alternative ways of transporting green hydrogen that are practical at all? Or is it pipelines or nothing?

Anthony Wang

At the scale that we're talking now — hydrogen is already transported in trucks and you can put it in tanks and stuff and that's usually compressed, you could liquefy it as well, but that's even more energy lossy. You end up having to compress it. So you pay for the compressors, which are expensive, or the liquefaction, and then it's again not very dense, so you end up having to pay a lot for the transport itself — and at the scale that we're talking, 20,000 tons a year, that's not something that you would want to be trucking around. Also from a safety perspective, I'm sure that's not ideal and lots of local authorities would not be very happy with that.

David Roberts

Yeah, that's a lot of trucks.

Anthony Wang

Yeah.

David Roberts

So it's just not practical, basically, at this point to build green hydrogen out in the middle of nowhere where the renewables are good.

Anthony Wang

Right, yeah, exactly. And that's also why I think today most of the hydrogen projects that are actually getting somewhere and having traction are the ones that are near industrial clusters and by ports and next to an existing refinery, which makes total sense. Right. Decarbonize the existing hydrogen that you have. But that's not going to cut it when you're trying to integrate renewables from the best regions into where the demand sinks are.

David Roberts

Right. Yeah. Are there even exclusively hydrogen pipelines now? Is there much of that infrastructure now?

Anthony Wang

So it does exist. So there is what's already available and there are industrial clusters and there are pure hydrogen pipelines. They're mainly operated by the industrial gas company. So the Air Liquides, the Air Products of the world, but these tend to be quite small. So these are 10-20 inch pipelines that aren't meant to transport across long distances. These are mainly pipes to bring it from one side of the industrial site to the other or as a backup. I mean, they work, they're totally safe and people have experience building them. But at the scale that the natural gas pipeline companies are thinking, which is like 48-inch huge cross country type pipelines, we don't have anything at scale or that's commercially kind of running.

But the TSOs, especially in Europe, are running pilots and trials. And I think there's one connecting Germany and France. There's a bunch of projects in the Netherlands. I know that the Dutch TSO is very active on this, so there's definitely stuff coming. But as to when and where exactly it'll be up and running, I don't know.

David Roberts

Right. And I'm thinking of the US. We have this huge hydrogen hub program. I'm sure you're familiar with it. It's a similar idea, building these huge industrial clusters. And I guess we're just going to have to build pipelines for all those in the US. Because there's not sort of curious about site selection for those too.

Anthony Wang

Yeah. As a principle, it's very difficult as an individual project developer to make a pipeline like this work. I mean, it really requires everyone to come together and the stars to align. And then you often need — this is why these companies are typically regulated, usually is, because that's the only way to finance it. And so I know we've looked at, for example, using pipeline transport, and as an individual company, there's no business case for building a pipe just for your own uses. It would have to be because you pool into it with other producers and off takers.

David Roberts

A little coordinated industrial policy to build that infrastructure. So you make the green hydrogen and then you combine the green hydrogen with CO2, basically to make methanol. So my first question about that is, where do you get the CO2? Because you've dodged the importing and exporting electricity problem, you've dodged the importing and exporting green hydrogen problem, but now you've got an importing CO2 problem. I guess my question is, how big of a problem is that? How available is CO2? How easy is it to get it where you need it?

Anthony Wang

Yeah, when we looked at this, it was like we kind of put the main energy carriers and commodities, we stack rank them electricity, hydrogen, CO2, methanol. Which one would you rather transport and which one would you rather store?

David Roberts

Right.

Anthony Wang

And kind of where you end up is you really don't want to transport electricity if you've not got an existing cable network, you don't really want to transport hydrogen. CO2 is a bit easier. I mean, it's still not ideal. It's an industrial gas. You need to liquefy it. But it's better than hydrogen. Much better. But the best thing to transport in store is methanol because it's liquid at room temperature. So what we try to do is you try to bring everything into our sites and then make methanol there, and then ultimately transport the methanol out to a port and on the CO2.

So we have two options, really. One is to work with industrial point sources and we try to work with companies who have either unavoidable process emissions so cement companies, or biogenic sources of industrial CO2. So pulp and paper.

David Roberts

So this is carbon capture you're talking about CCS.

Anthony Wang

Yeah. So this is carbon captured.

David Roberts

Is there enough of that to supply you?

Anthony Wang

So, obviously, we've got quite a big carbon CO2 supply problem. So from an availability in the flu gases, for sure, obviously, I think you're asking about the carbon capture itself.

David Roberts

Right. Is enough being captured to supply a substantial market?

Anthony Wang

Interestingly for us, when we started this, we looked at the market and said, okay, very few are actually capturing the carbon. But when we spoke to a lot of these potential CO2 capture companies and suppliers, to our surprise, lots of them already had been doing lots of engineering study and were very keen to implement this technology. The problem for them is they had nothing to do with the CO2. Interestingly, for a cement company, especially the ones that we spoke to in Europe, they're under such immense pressure with the EUTS, the European Carbon Cap and Trade system, where they're essentially, once that's in full swing, their product price doubles because it's one ton of CO2 per ton of cement.

Cement sells for 50 euro per ton. So you can do the math. Right. So for them, they had to do something. So they've been studying this and looking to pull the trigger on some investment decisions.

David Roberts

I thought there were industrial uses of CO2. I thought there was a market there.

Anthony Wang

Yeah, CO2 is already used today for greenhouses, but at a very small scale. And usually, the CO2 is not coming from big industrial point sources, although there are some. So there's some ammonia plants that already capture CO2. So that's one is on the industrial point source. The other source that we think is a very good option and where we have lots of discussions, is with biomass, often anaerobic digestion. So if you look at RNG, what you have actually is a very pure source of CO2, because in the process of making RNG, what you do is you essentially purify RNG from biogas.

And biogas is about 50% RNG and 50% CO2. So in the process of purifying RNG, you actually inadvertently purify CO2. But because there is no offtake for it, the CO2 is currently vented. People don't make a big deal out of it because it's biogenic CO2, right, because it comes from dairy manure or agricultural residue. But it's still right. It's CO2 that's vented into the atmosphere, which we could at that point, you're not really talking about carbon capture, right? It's just connecting it to a pipe because it's already pure. You don't need to scrub it or clean it.

And that CO2 is a very good source for us because, a), it's very, very pure, so it's cheap, and b), it's obviously biogenic.

David Roberts

Well, if they were going to throw it away, if you hadn't come along, I would imagine they're willing to sell it to you quite cheaply.

Anthony Wang

Yeah, exactly.

David Roberts

So in terms of just sort of absolute numbers, you're not worried about supply of CO2, you think you have enough CO2 to go on for a while or what's your outlook on that?

Anthony Wang

Yeah, so, I mean, just to give you an example, right, we have an agreement with Cemex, a major cement company, and their cement plant produces 450,000 tons of CO2. And one of our projects takes 150,000. So three of our projects are needed to decarbonize one cement plant, just to give you a sense of the scale. And then these guys have tens of these around the world, and that's just one company. So in terms of scale, we're not too worried about the CO2.

David Roberts

Right. So in terms of its availability in general, clearly there's a lot of it. But in terms of the mechanics of getting it to you, that's not a bottleneck at all. How does it come to you, by the way? Does it come to you in a truck?

Anthony Wang

So we use a combination of rail and trucks. So both CO2 and methanol, we rail and truck. Typically, what we find is that actually the CO2 producers or industrial facilities are again close to ports where traditional industries are. And so what we end up doing is we use the same infrastructure, so the same rails and same train rail, cars and trucks to import the CO2 and then export the methanol. And it's a similar principle where we use tankers. So you liquefy the CO2, put it on a train and then the methanol is already liquid and you export it out.

And so that infrastructure all exists and it's just a matter of connecting to the right infrastructure.

David Roberts

And to be clear, you intend to only use captured CO2, not like natural CO2 from underground, because your sort of process is only carbon neutral if you're using the carbon that's been captured somewhere else.

Anthony Wang

Yeah, exactly. And I mean, there's lots of debate and discussion about what exactly is good CO2. Maybe that's a rabbit hole that we don't have time to dive into.

David Roberts

Have they made up a bunch of colors for that yet?

Anthony Wang

Wouldn't be surprised if they're getting to that stage. So in Europe they call it biogenic CO2, which ultimately means that it has to be CO2 with a short cycle. So it can't be CO2 that's from the ground basically. Right, but obviously, even with things like processed CO2, you can argue how green is that compared to if it was from agricultural residue? But then you can argue that some of the biomass that's being used today for power and heat production from wood in the Amazon forest isn't great either, so it's a pretty big topic.

David Roberts

Or direct air capture. Is direct air capture even enough of a thing for you to have thought about it? Or is that still just a gleam in somebody's eye, more or less market wise?

Anthony Wang

Yeah, it's not competitive at the moment, so obviously for us it'll be an option in the future. Today there is not nearly enough scale and it's not competitive enough for us to consider it. But I mean, I'm definitely keeping a close eye on it, but for now, we stick to the industrial point sources. Obviously, it would take out a lot of the transport considerations because we could power the direct air capture with our own renewables. So we could just put everything in the same location.

David Roberts

Yeah, you could make your own CO2.

Anthony Wang

Exactly.

David Roberts

That would add another piece to the optimization puzzle. You're going to have to bring AI in to deal with all this. So I think my knowledge of e-fuels is pretty sketchy, as I think most people's are. My understanding is that if you have hydrogen and CO2, there's a number of different fuels you can make. So of all the sort of possible fuel choices, why methanol? Is it easier, process-wise, to make it, or is it something about the market for it is better, or what are the sort of considerations?

Anthony Wang

Yeah, for sure. Obviously we had to pick one. We looked at the hydrogen market and if you look at where most experts think hydrogen will be used today and likely in the future, it's mainly as a feedstock. So it's for ammonia, methanol, steel and sustainable aviation fuel (SAF). And so those are the main kind of derivatives that we considered. Obviously we looked at the technical side, so we've talked a bit about the transport options and methanol kind of comes out on top. There ammonia, better than hydrogen, but still quite a toxic gas as well. We had to pick one to start with for our first project.

But I would like to add we're called ETFuels, not ET Green Methanol for a reason, not only because the latter is not very catchy, but also because we see our off-grid production model as a way to scale into a multi-fuel future. But for our first one, we chose methanol. Again, partially for technical reasons, but also part of it was just timing, because this was around the time that the big Danish shipping company called Mersk made a huge announcement that they essentially committed to methanol as their decarbonization fuel of choice. And they had put in an order for eight methanol-fueled vessels at the time.

This was a couple of years ago. Obviously, that number of methanol ship orders has grown exponentially since then. Last I checked, in the first half of 2023, methanol vessel orders represented 62% of the order book, outstripping all other fuel types. And so for us, the message from the shipping sector was clear. If we're going to decarbonize and do anything in the next ten years, it has to be methanol, because the ammonia engines just aren't ready yet. So that was quite an obvious one for us. And then on top of that, methanol is already an existing market of 100 million tons a year, used as a chemical feedstock for various plastics and chemical products.

So that's kind of the main reason that we went with that fuel.

David Roberts

So you chose methanol because it's easy to transport at room temperature and there's a relatively guaranteed market for it, but you think the model, there's nothing about the model that's going to prevent you from moving into other kinds of e-fuels.

Anthony Wang

Yeah, exactly. I think one of the reasons the model is attractive, the off-grid model, is because so much of the cost and learnings are applicable to other fuels as well. So obviously the renewables is the same, the hydrogen production is the same, and this is the notion of hydrogen as this platform chemical. And then the final part is, depending on which fuel you go with, is 15-20% of the total CapEx. But you could have a train for ammonia, you could have one for methanol, you could even have one for e-methane, which some people are doing, which is kind of e-RNG.

And so for us, it's — obviously we bet on methanol as our first. We think the market is ready there, but ultimately, ammonia might have a big future in shipping as well. And ammonia doesn't have the CO2 problem. So for us, it's a really good way to kind of keep our options open.

David Roberts

Is making methanol out of hydrogen substantially more or less expensive than making ammonia out of it, or methane? Or are there substantial cost differences in that last piece of the puzzle?

Anthony Wang

So the main difference is — they're all a bit different. So obviously, ammonia, the big benefit is you don't need CO2. So whatever you were paying for the CO2, you're now no longer paying for.

David Roberts

Betraying some rank ignorance here, but how on earth do you make hydrogen into ammonia?

Anthony Wang

You combine it with nitrogen, so you take nitrogen out of the air, so you purify nitrogen and then you run it through a reactor. It's a similar type of synthesis reactor where you basically run your gases at a certain temperature over a catalyst. So for ammonia, it's called the Haber Bosch reaction. For e-methane, it's called the Sabatier reaction. I think the methanol reaction doesn't have a name, but they all have similar principles, which is you put it into a chemical reactor, hydrogen plus some other compound.

David Roberts

Right, so it's not no, it's very similar.

Anthony Wang

I mean, there are obviously some technical, detailed process differences. So ammonia in terms of reaction, temperature in terms of how well it operates under fluctuating load. So all of these processes, whereas the electrolyzer is very flexible, most of these chemical reaction kind of chemical plants are a lot less flexible because you need to maintain the temperature and the pressure. And it's much more like a refinery than an electrical kind of process. And then for methane, when you're obviously methanol, the last step is distillation, where you have to separate the methanol from the water, whereas with methane, you're separating a gas from water.

So there are some kind of nuanced differences. But in terms of the big picture, I mean, your renewables is the same, your hydrogen is the same, and the last 20% you can kind of flex that if you need to.

David Roberts

So in terms of carbon-neutral methanol, for which there is this sort of nascent market just emerging, these shipping companies just sort of getting into this. Are there lots of competitors? Do we know? I mean, is there a good sense yet, like, what it ought to cost? I guess it's far from commoditized at this point. But how mature is that final market? Or is this sort of like everybody's figuring this out as they go?

Anthony Wang

Probably more the latter. I mean, there are definitely competitors. I'd say most e-fuel announcements you see are probably around ammonia because it's just slightly easier because you don't have to source CO2, which is a challenge. So for us, it's a competitive advantage, I think, that we know how to source CO2 and we know our way around that market. On your question around pricing, so of course people are figuring it out. There are a couple of pilot plants. There's a few that have just started, kind of just taken an FID. Orsted has just bought one in Sweden where they've started construction, but they aren't producing yet, so no one really knows how much it's going to cost until it's operational.

Obviously, we know, today we would be producing at a price premium to fossil methanol. But that'll be the benchmark is — how many times more expensive are you compared to either fossil methanol or the fuel that you're replacing. So in our case it'll be fuel oil for shipping.

David Roberts

Yeah. I'm guessing you're a lot more expensive than fuel oil at this point.

Anthony Wang

Yeah. So at this point we're significantly more expensive. Obviously what gives us comfort is that we're well one is the cost reduction trajectory of the technologies and the learning that we think we will gain and two is our relative cost differential against our direct competitors which we see as green methanol. Right. So we don't think we will be directly competing with fuel oil because one obviously from a regulatory perspective those get treated very differently and all the incentives that a shipping company, especially in Europe, in the US you've got the IRA in Europe there's lots of incentives for fuel switching demand side kind of quotas and ways to benefit.

So you only get those if you're to decarbonize fuel. And for us, what gives us comfort is not so much the comparison to fuel oil but the comparison to other green methanol projects. And for us the off-grid nature gives us this competitive pricing advantage because of our cheaper power and that's what allows me to sleep at night.

David Roberts

Well, one question I have is, what counts exactly as carbon-neutral methanol? Because, as Volts listeners know, because they listen to the hydrogen tax credit episode, the question of what is the carbon intensity of your hydrogen is far from straightforward. And there's a lot of debate now about whether to require it to be off-grid or exactly how to measure the cleanliness of the electricity going into it, et cetera, et cetera. It's a very complicated debate here in the US. I'm sure you're very familiar with it over in Europe too, you are very clearly making carbon-free hydrogen because nothing's more additional than renewables that you are building yourself to attach to your electrolyzers, right.

So you clearly pass the bar. But is that same debate live in Europe? Because if people can use cheaper grid renewables I don't know, maybe that actually wouldn't give them a cost advantage. I don't know. But is there debate right now over what counts as e-methanol?

Anthony Wang

Yeah, for sure and really good point on the additionality I hadn't mentioned. Thanks, David. It's a big part of why we've chosen this model as well. It's the cost, it's a scale and it's the additionality on the debate around what is green methanol. So for sure, I think in the US it's a bit of a different discussion. There's not really so much a definition of what is green methanol because you make it compete with fossil methanol through the IRA, through the tax credit. In Europe, we've just had a big legislation passed called the Delegated Act for Renewable Fuels of Non-Biological Origin.

Anyway, lots of rules kind of were described in that one is for green hydrogen, which is the one that you talked about, which I think is the similar discussion in the States around additionality temporal correlation, geographical correlation, which we comply with. And the second one is around CO2 essentially how you carbon account for the CO2 in a fuel like green methanol. And the European policymakers agreed on that. So the commissioned parliament and so what we have is up until 2040 any CO2 is okay. So that's kind of what they agreed on. And then beyond that, you would need to be either unavoidable process or you need to be biogenic.

But for now, their argument is because there is so much CO2 that's kind of going into the atmosphere that we're not decarbonizing — all of those sectors, for those sectors, you can capture the CO2 and use it and it'll qualify as a "renewable fuel of non-biological origin." That's what they call it.

David Roberts

Interesting. So as I'm thinking about a project like yours in the US in a post-Inflation Reduction Act world, I'm sort of slightly boggled at the number of tax credits or subsidies that you could rack up with this. You could get tax credits for building the renewables, tax credits for green hydrogen which are substantial. I think there's tax credits for using the CO2. I think there's tax credits for the e-fuels. Like every piece of this is going to get money showered on it from the IRA. I'm wondering whether that makes these projects more attractive.

I mean it must. And whether you've been thinking about that. And two, just on a more general basis, how you think about subsidies and whether you need them and to what extent this business model relies on them.

Anthony Wang

Yeah, we founded the company before the IRA, before all these policy and incentive mechanisms came out. And we founded it because we believe there to be a commercially viable proposition without it. So we didn't create a business that relies on or is reliant on subsidies. I don't think that would make for a very good business.

David Roberts

Well, there are plenty of them.

Anthony Wang

Yeah, I guess so. But I mean, obviously now for us what this means is kind of accelerated our trajectory so we can do things much faster and basically just get going. And obviously we can't not go for them because it'll make us less competitive because our competitors are. In terms of which ones exactly, I mean, we take quite an opportunistic approach. Obviously in the US we'll try to play into the tax credits the extent to which you can, I don't know, what I would call "double dip" in the sense that get benefits from the US credits and then export your fuel to Europe and then get more benefits there from avoiding the EU ETS.

I don't think that's entirely clear. I mean, I'd be quite personally, as a taxpayer—if I were a US taxpayer—I'd be a bit skeptical of that. And even as a European one, I'm not sure how comfortable I feel with importing US-made fuel subsidized with US tax credits and then getting another whammy on top of that in Europe. Yeah, but I think that's all to be identified in Europe. Obviously, you've got the innovation funding there's all the onsite measures, which I think are much better. Like for example, the renewable fuel quota. That's a very clean quota for ships where they just have to switch a certain share of their fuel to be green.

And then you've got various other kind of incentive schemes, carbon contract for differences, which are meant to be a support mechanism for hydrogen production. And so we'll see for us, basically what it means is that our projects are even more viable than they were a year and a half ago.

David Roberts

Have you done the math yet on a project with all the IRA subsidies? Because the green hydrogen tax credit is ginormous.

Anthony Wang

Yeah, obviously we've done the math just to give you maybe cut some numbers. So the $3 per kilogram hydrogen tax credit translates to about $600 per ton of methanol. And just to give you a sense of fossil methanol, so methanol made from natural gas today, I mean, I haven't checked the latest numbers, but historically it's kind of traded at around $500 per ton. So that's only for your hydrogen. And then on top of that, there is potentially a CO2 credit, which again, the extent to which we can play into that, I don't know. But the CCU tax credit is $60 per ton of CO2.

And in terms of when you translate that to methanol, you would get to around $100. You multiply by 1.5. So again, it's a lot of you add it up, you get to like a $700 per ton of methanol tax credit compared to the fossil price of $500.

David Roberts

Is that enough to erase the delta with the fossil kind?

Anthony Wang

Yeah, we'd be in the money for sure.

David Roberts

I mean, it would be wild to be on the market selling carbon-free methanol that is cheaper than the carbon kind.

Anthony Wang

So that raises the question is what you're paying fo, right? That's where it's different in the US than in Europe. In the US, essentially that's the mentality, right? You're not trying to sell some different product, you're just trying to sell the same product cheaper. And that's why you need these support schemes to make that work. Whereas in Europe you're essentially saying, well, it's green, so it's okay that it's more expensive, but you have to do it because it's green. So it's kind of a different mentality.

David Roberts

Yeah, there are more sticks in Europe and we're all carrots over here in the US.

Anthony Wang

Yeah, but I mean, from a developer and financiers perspective, it's not clear which one is better because obviously with the renewables, the drawback in the States was that one year you had them one year you didn't. Whereas in Europe the demand side signal meant that you had a very kind of fixed base load of demand.

David Roberts

Right. Yeah, that's interesting. So, the final question is just, it does seem like to some extent this business model is a reaction not to technological factors, but to socioeconomic factors. So, for instance, the limits of the grid and the slowness of getting on the grid, the slowness of interconnection, the lack of hydrogen pipelines, these are kind of bottlenecks or pressures that one can imagine easing over time. Right? One can imagine the grid getting built out more. One can imagine green hydrogen, I don't know, I actually have trouble imagining green hydrogen infrastructure being built. But who knows, it could happen.

So, I wonder if those became easier and they were less of pressure points, would some of the rationale for this business model go away?

Anthony Wang

Yeah, I'm not sure if I fully agree with that statement. Just from the perspective of — yeah, okay, there are challenges with the incumbents and the pace that they're getting things done. But for us, it's also fundamentally what is a more efficient way to run the energy system. It's not just because it's not being done, we need to find some loophole that can make it work. Fundamentally, you can ask the question if you had a renewable energy system or an energy system that was driven mainly by renewables, is it more efficient to overbuild your grid, to run all that stuff intermittently —

I mean, I've been part of grid planning sessions in Europe and when you've got capacity factors of solar of 15% to 20% and wind of 25% to 35%, you have to build an enormous grid to balance that. By the time that you've actually built out the grid to kind of run your power system base load, your balancing cost, sometimes they call it balance of system, basically the cost of all the extra stuff to keep it running becomes quite excessive. So, I think a study by Imperial estimated that that cost would be 50 to 60 pounds per megawatt hour of just pure balancing costs. That's in addition to the renewable costs, which by the way are a lot less cheap in Europe than they are in Chile.

And so, you very quickly get to power prices which are much higher than what we are paying today. And then you can wonder, wouldn't it be more efficient if you could import some of that cheap power, put panels where it's sunny or put turbines where it's windy and import the power. And then also the other thing is, does it even make sense to try to aim for this type of base load, supply driven system or should we be running more flexible assets? And in many ways, what we've got is just a flexible asset, right? It's an electrolyzer that follows the renewables.

And so, the system benefit of an asset like that is quite big. So, I don't think I fully agree with your framing of the business model. I think there's more to it than just it's a way to bypass all of the slow incumbent infrastructure. But it's definitely a good question and I don't think anyone really knows the answer until we've tried both paths.

David Roberts

So, you think that the limits of electrify everything are more than just incidental or contingent? You think we're going to run into these balancing cost issues and it's going to make more sense to run more stuff on liquid e-fuels?

Anthony Wang

Not for everything, obviously. I wouldn't ever buy a diesel car and then hope to ever be able to afford e-diesel rather than an electric car. So, obviously there are time and place for everything. For certain sectors, though, I definitely think, I mean, I'd rather fuel my ship or my airplane with an e-fuel made where renewables are cheap than to try to do that next to Heathrow Airport in London or something like that. So, I think, as always, it depends and we're very targeted in where we go. We're not looking to sell e-fuel to heat homes or do anything like that.

It's very targeted to the sectors which are hard to abate and don't have other options.

David Roberts

This has been super fascinating. I hope listeners agree. I hope we haven't gone too far down the technical rabbit hole and lost people. But I find this, this is where all the sort of interesting issues in the energy world are hitting the ground, right? Like you're trying to actually do these things. And as, as you said, when you start trying to actually do things, whole different challenges arise and whole different sort of questions arise about optimization and stuff like that. So, super fascinating to walk through this with you. Thanks so much for coming on, Anthony.

Anthony Wang

Thanks for having me, David. It was a pleasure.

David Roberts

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