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Show Notes
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.
Text transcript:
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 r