Energy Transition Now Podcast – Episode 32 “Funding Hydrogen Technology”

David Linden [00:00:00] Everyone, You’re listening to Energy Transition Now, and I’m your host, David Linden, the head of Energy Transition for the Westwood Global Energy Group. And after a fascinating and enjoyable mini-series on offshore wind, we are today kicking off our hydrogen mini-series. You won’t be hearing too much of me this series, as it’s going to be led by my wonderful colleague Joyce, who currently heads Westwood’s Hydrogen Team. Say hello, Joyce.

Joyce Grigorey [00:00:31] Hello, listeners. Hello. Thank you, David.

David Linden [00:00:34] No problem. I look forward to hearing all the insights over the next few episodes. But what about today’s episode? Well, Joyce and I are joined by Michelle Robson, the senior investment manager at AP Ventures. Her background is a mix of commercial strategy, digital and innovation. I’m sure she’ll explain better than me. But it’s really her work she’s been doing over the last sort of 5ish years at AP Ventures, that we’d like to focus on today. Michelle, it’s great to have you on the podcast. Welcome.

Michelle Robson [00:01:13] Thanks, David, and thanks, Joyce. It’s great to be here speaking with you both today.

David Linden [00:01:19] Super. So Joyce and I have obviously got a bunch of questions for you, but let’s start off with some of the basics, if that’s all right. Could you maybe just start off by giving us a little bit about AP Ventures and your role and how that will work if possible?

Michelle Robson [00:01:34] Yeah, sure. Absolutely. So, look, we’ll go back in time a wee bit. AP Ventures was originally the corporate venture capital of Anglo-American, which is a global mining company. I’m sure many of your listeners are familiar with. And AP Ventures began life, investing off-balance sheet back in 2014. And we started looking at the hydrogen space quite early on, actually. The first investment was around about 2014. So we’ve developed quite a deep understanding of the sector in the intervening periods between 2014 and 2018, we built up a portfolio of around about six investments and we started to attract interest from others from outside of Anglo American who were fascinated about what we were doing in this new emerging hydrogen space. So they wanted to come in alongside us. It’s very difficult to do within a corporate venture capital fund. So we spun out and became completely independent in 2008. And Anglo American became a cornerstone investor in Fund One and also supported us in launching fund to become a cornerstone investor in Fund Two. So now we have 12 limited partners in Fund Two, we have 400 million under management across Fund One and Fund Two, the bulk of that sits in Fund Two. And we have built a portfolio that’s very much focused on industrial companies’ decarbonisation, leveraging hydrogen. Now we take quite a broad approach to the hydrogen and value chain because we recognise the role it will play in a variety of end use applications and for that it’s going to need complementary molecules, so things like carbon and ammonia and methanol. And so that’s also part of our investment thesis. And I think it’s probably also worthwhile noting that we do take a thesis-based approach to investing. So we have our own views on where we see the opportunities within the space, but we are very open-minded about new opportunities also. So while we have quite a deep understanding of the hydrogen market, we spent a lot of time researching, speaking to new start-ups and users, academics. So we keep abreast of all the emerging opportunities and challenges in the decarbonisation space.

So that’s a bit of AP Venture’s history in terms of myself, I’m a senior investor here. I’ve led investments into a wide variety of technologies and products that’s included things like green ammonia, the production and the use of green ammonia, power-to-chemicals, carbon capture, mobility. And I sit on the boards of Starfire, a green ammonia technology company, HPNow, which is a power-to-chemicals technology, Immaterial carbon capture company. And I manage our investments in Amogy, which is a mid-ability company and Hydrogenius, which has a technology which is a carrier for hydrogen.

David Linden [00:04:32] Can I just ask maybe just that’s very interesting. And I hadn’t realised that it sort of spun out of Anglo at that stage. Just quickly, why did Anglo look at hydrogen so early on at that stage? It’s a fascinating kind of area to be looking at. And a company that’s as big as Anglo to be thinking about something like hydrogen so early on. What kind of spurred that on, if you don’t mind me asking.

Michelle Robson [00:04:57] Yeah, absolutely. So Anglo-American, it was a lot of foresight actually. So Anglo American is one of the largest producers of platinum group metals globally and they have huge operations in South Africa and they’re a large employer within South Africa. And the primary use of platinum group metals, everybody thinks of platinum as being, you know, the engagement ring or a piece of jewelry, but actually 70% of platinum group metals are used in catalytic converters in the powertrain, and so in automotive and trucks and buses. And as the powertrain converts to becoming, you know, battery electric vehicle or potentially a fuel cell. But as you remove the need for those catalytic converters and therefore you remove the need for those metals. So Anglo American was looking for new markets that could take up the demand that would be left behind. And hydrogen became apparent quite early on that hydrogen would be a big user of platinum group metals. You use them in electrolysis, you use them in the midstream, you use them for the production of green ammonia, for synthetic fuels, and then obviously you use them in the downstream, as well for fuel cells.

David Linden [00:06:05] So there’s a whole broader theme around the energy transition, also a metals transition.

Michelle Robson [00:06:11] It is indeed.

David Linden [00:06:12] I can come to that as well. That’s fascinating. Okay. Very interesting indeed. And I mean, in terms of your thesis then that you have, it does sound like you don’t have a particular sort of focus in the value chain. It sounds like you think wherever your thesis kind of fits here, we’re quite happy to think about the entire value chain as the opportunity set here. It’s not just about production or transportation, it’s the whole thing. You need to think about the whole thing.

Michelle Robson [00:06:43] Yeah, absolutely. You’re absolutely right that we believe that you do need to think about the whole thing when you’re looking at investment in the hydrogen space. And you know, often if you’re strategic, you are limited to one particular section of the value chain. So that’s really what I think our opportunity here is, as a financial investor, we can look across the whole space and we see hydrogen as, you know, similar to any commodity. If you invest in one part of the value chain, you unlock value not just for that particular part of the value chain, but for the entire market. So we have investments in upstream in various, you know, various forms of low-carbon hydrogen production, as well as carbon capture technologies. We’ve got investments in that downstream where we’re looking for markets that are going to be early adopters of hydrogen and the derivatives. And then we also have quite a number of investments in the midstream as well. So the midstream is critical because it enables you to connect those sources of supply and match them with demand, which is it’s a big issue within the hydrogen space because obviously hydrogen being our smallest, our lightest element is very, very difficult to store and transport. So that midstream is going to be critical to the development of the value chain.

David Linden [00:07:55] Interesting. And I noticed you mentioned carbon capture there. So I’m assuming this is not a pure green hydrogen portfolio you’re thinking of. You actually have blue in there as well. And that’s what you’re trying to sort of say, look, you’re colour-blind, if I could say in that sense.

Michelle Robson [00:08:09] Yeah, absolutely. We’re very open to low-carbon hydrogen of any colour and we want to see that all or substantially all of the carbon can be captured and permanently captured. That’s absolutely what we’re looking for. But yes, we are very open to blue technologies that fit that brief. We’re very open to it. We’ve got investments in methane pyrolysis. We would also look at other technologies that meet that brief around the ability to capture and permanently store the carbon.

David Linden [00:08:41] Okay. And you kind of alluded to that. Either you need to be looking at actually creating a new value chain right here. This is the hydrogen value chain exists in some sort of smaller pockets but there is obviously a hydrogen market of sorts out there already, but it’s quite niche. And when you’re thinking about priorities and you’re thinking about how market should look like or should be developed, should we say, are there areas, you’re therefore saying, look, this is a space that’s really missing, that’s where investment is needed? Or is it back to the, well, actually, to be frank with you, the whole value chain, you can’t just pick a part of it and go, that’s how you can develop the production, because you’ll never actually have the demand for it. So what’s your view on those things?

Michelle Robson [00:09:27] Yeah, look, I think we can often get lost in this chicken and egg argument and yes, it is true. You do need to be developing all of them in parallel. But if we had to pick an area where we think it is critical, that would be the midstream. As I was touching on before, the fact that actually the lowest cost sources of low-carbon hydrogen are likely to be both geographically and temporally distant from where the demand is going to be. So you’re thinking that you’re producing your hydrogen at great volume in places like the Middle East, North Africa, the west coast of Australia, and you’ll be supplying it to customers located in Japan and Korea and Northern Europe. Now you need a way of efficiently, safely transporting large volumes of that low-carbon hydrogen to those customers. And so that’s why we’re big believers in the midstream and we see that that needs to be built up. You need to find a way of building it up gradually. It’s not like you can just lay down a massive electric grid and get it started. So you need to add incremental demand and then you are able to supply those demand centres with the lowest cost hydrogen available today.

David Linden [00:10:52] Okay. And some folks maybe who don’t follow the market that much. Are we essentially going on the thesis, shall we say, that there is a dislocation between supply and demand, as in, the cheapest supply in the world is typically not where the demand for high return, at least in volume, will be. Is that what that’s based on?

Michelle Robson [00:11:13] Exactly. Exactly. Yeah, that’s right. The great thing about renewable energy is you can find it in lots of different locations. But again, it comes back to it’s a commodity. And so there will be some renewable energy locations that are just much cheaper than other sources of renewable energy. And so it will make sense to transport that really low cost renewable energy to wherever the demand centres are going to be.

David Linden [00:11:40] Okay. And does it therefore, in your mind, make sense that we’ve got a push for local hydrogen developments in places like Europe and the US, which are not historically your cheapest places to produce things, should we say manufacture things. They’ve often ended up in other parts of the world because they are cheaper to produce and or you’ve got more renewable resource available in those countries. It’s quite a difficult question to answer, but I’d just be interested because you’re right, there was a midstream play here. There is a dislocation of supply and demand. You know, obviously every country right now and I see it in other renewable technologies as an example, is trying to say, no, but I’d like to keep things local, actually, please. What’s your view on that? I mean, what should governments be thinking about here?

Michelle Robson [00:12:31] It’s a really interesting point. And I mean, we could spend, I think, an hour debating just this one point. But if we think about it like, you know, obviously I’ve got a mining background, so I think of it as like a price curve where you have green electrons at different from different renewable energy sources priced differently, then and each geography is going to be different in terms of the shape of that price curve. Some geographies are going to have an awful lot of low cost green electrons available in their location because they’ve got abundant wind or abundant sunshine, or the lucky few have both wind and sunshine and perhaps some hydro available. And so for them they could potentially be entirely self-sufficient. But you could have another geography where the profile looks very different. There may be some low cost green electrons available. But there’s they’re in short supply and you’re better off using them for the purposes of direct electrification wherever you can. And then what you would use your hydrogen imports for is because it’s actually cheaper to import hydrogen rather than build more sources of renewable energy that are going to be at too high a price point, if you see what I mean. So each geography is going to be quite different in terms of what the economics look like. And then we would have to overlay on top of that the political priorities around energy resilience and to what extent a country wants to be self-sufficient and the premium that they’re willing to pay for that self-sufficiency. I suspect what we’re likely to find is that there’s going to be a point in the middle at which the government says we’re comfortable to have a certain amount of self-sufficiency and this is the price we’re willing to pay for it. And we’re comfortable to have the remainder coming from imports. And what that point in the middle is going to be is still to be determined.

David Linden [00:14:25] And it will change  as we go along. But well, actually, that was a very neat and lovely way of explaining things. Thank you. Very interesting. As you say, it is it is a whole topic in itself, but very interesting. Thank you.

Joyce Grigorey [00:14:38] Yeah. And just to follow on from that, I mean, you seem like you’ve got quite a number of different variables to have to look at. You know, you’ve got to think about your costs. You’re looking at different areas of the entire value chain from upstream to downstream. Where do you play, you know, what sort of technology do you develop? So I’m interested to understand a little bit around your thinking, around  some of the criteria that you consider when you’re making your hydrogen investments. What, if you had to kind of tier them in terms of top three things that you look at, what would you what would you say?

Michelle Robson [00:15:17] Yeah, sure. And look, to be honest, it’s going to be very similar to any other early stage start up that you look at any other market. But really it comes down to technology, it comes down to market and team and it’s those. Those are your top three and they’re quite broad.

But maybe if we take one at a time, you know, in terms of technology, there are still opportunities for innovation. We often hear the argument now that you have all of the existing technology that’s available, you just need to scale it. That is true to some extent, but there are still technology gaps. So, for instance, one that we can talk about a little bit more is where we’ve invested is in ammonia cracking. So efficient means of cracking ammonia to pure hydrogen is an area where we require technology development and we’ve targeted investment in that space.

Then you have areas where, yes, there’s an existing solution today, but there is opportunity to significantly improve that technology. And so a good example of that might be in electrolysis where, yes, we do have, for instance, alkaline electrolysers that have been around for 100 years, but there is opportunity to significantly improve the efficiency and the cost of those systems, which is why you see investment going into the next generation of electrolysis and then you have opportunities for innovation by using the technologies in a new way. So for instance, using hydrogen to produce synthetic version of chemicals or synthetic versions of fuels to replace the fossil fuel version of those that we use today. So those are some of the categories that we look at when we talk about technology.

Joyce Grigorey [00:17:06] So just a follow on from, is there one that you think needs much more development than the others? Is ammonia cracking quite far behind? Do you think there’s more potential there? Because there’s, you know, a larger requirement for ammonia to be transported around the world or for hydrogen to be transported as ammonia around the world? And so therefore that’s, you know, there’s a lot more potential in that technology.

Michelle Robson [00:17:33] Yeah, it’s a really good question. So in terms if we take ammonia cracking specifically, there are now start-ups in this space that are developing really interesting solutions focused on ammonia cracking and I expect we will see more emerging as this space matures and as we understand the opportunities for ammonia to play a big role in industrial decarbonisation, I expect we’re going to see more of the same coming out. There’s a lot of problems we haven’t quite cracked yet. So for instance, direct air capture, we do have solutions for direct air capture at the moment. They’re very expensive, they’re very energy intense. So there is significant opportunity there to bring down the cost to improve the efficiency of technologies like that. I often hear people talk about waste, utilising waste to be able to produce power. I would argue that that’s another place where there could be a technological breakthrough that really dramatically improves the techno-economics of that opportunity. Because what we have today, you know, struggles to provide an economic product that the market would be able to easily adopt.

So in answer to your question, Joyce, there is still opportunity for technology innovation. And we are looking at all of those three areas that I just spoke about with a very open mind.

So markets up. So I’m going to answer this at a market point from a venture investor perspective. So thinking about a venture investor, we are thinking about holding an investment for somewhere around 6 to 8 years, maybe possibly a little bit longer. And so you’re thinking about a product or business model that you are going to need to sell into a market in 6 to 8, 10 years. So what you’re looking for in terms of a market is something where you believe there’s going to be a commercial opportunity by 2030. And so that really does dictate in the hydrogen space the kind of markets that you look at or the kind of products that you look at, i.e. you’re looking at something where you believe there’s going to be a commercial opportunity by 2030. So that’s a really important dimension for us. We look at lots of different products and technologies that are super interesting. The technology might actually be ready, but we don’t believe the commercials are going to be ready, at least by the time that we come to exit.

Now, obviously, venture capital funds continue to raise funds over time. And, you know, you will have the next fund that might have a life out to 2035 that enables you to pick up a whole new different set of commercial opportunities. So that’s a really important piece around the market. We’re looking for something that we believe can provide value within sort of the near to medium term. And we’re also looking in that market space for something that can stand on its own. Ideally, we want a product or a technology or a business model that, at scale, makes sense without relying on subsidies. So you want something that is competitive versus other comparisons in the market, other markets in the market, without subsidy.

Joyce Grigorey [00:20:46] Does that then mean that you’re looking for things that, you know, if you’re thinking that this application is already going to receive a subsidy, you don’t bother looking at it?

Michelle Robson [00:20:56] Subsidies are really important and super helpful in the beginning to help a technology to get up to scale and to help adoption of that particular technology. So all new technologies face this battle whereby you’re producing them in such small volumes that they cannot compete on a cost basis with something that’s already been mass produced. So you need to be able to get over that hurdle. You need to be able to help the product to get to be able to compete with something that’s already had the benefit of being produced for the last 50 years at mass scale. Subsidies are fantastic to help a new product get over that. What you want to be able to see is that you have product in a business model that does not need to rely on a subsidy. Once it gets to that mass scale.

Joyce Grigorey [00:21:39] And is there a certain timeframe that you’re looking? Because with the subsidies that they’re offering for hydrogen, there’s, you don’t know when they’re going to end. You don’t know when the government is going to pull back on them. So when do you, how do you assess that? How do you assess to say, okay, if we think in ten years’ time there’s going to be an opportunity for us, five years time, you know, in five years they’ll continue to have subsidy support. So why invest now? You know, why should you invest now as a venture capital firm?

Michelle Robson [00:22:09] Yeah, absolutely. I mean, so I guess we’re getting then to the nuts and bolts of venture capital, but it’s always about a risk-return calculation that you’re making, which is that you believe that actually the opportunity for great returns is if you take the risk to invest today, because it’s, by then, passing through those various milestones abating all the risk that you get to a point at which, you know, there is the value and you’ve passed, you know, you’ve got rid of all the risks, so to speak. So we will take a view on when investing in any new technology that we think has the opportunity, when produced at scale, to compete with existing solutions on a cost basis. But we’re not necessarily expecting that to happen within the next 5 to 10 years. We can just see a pathway towards that. And that’s why that techno-economic analysis that we do is so important. We need to see the pathway to cost reduction to having a product that the market can adopt at scale.

Joyce Grigorey [00:23:10] I see. Okay. And so maybe we can come back to, you know, the way that you think about investments. I wanted you to carry on with your three things first, before we kind of move on. But it’s an interesting point. I’d like to touch on that a little bit A  little bit after that. Your third point was around team. Can you maybe explain a little bit more into what you mean around that?

Michelle Robson [00:23:38] Yeah, absolutely. So team is probably the most important factor of all, actually, because really what you’re looking for there is a really energetic, dynamic, passionate team that feels belief and ownership of this problem and is able to carry the company all the way through. Now, obviously you continue to add to the team as the team develops and grows, but it’s that team that’s going to be able to help the company through all the different challenges and opportunities that enables, you know, that that really brings that product to life. And that’s why for us, the team is just so important. And so we enjoy we love working with all of our all of our various founders and our teams. Just the passion that they have is so inspiring.

Joyce Grigorey [00:24:28] Okay. All right. Thank you. So. So three most important things for you are technology, market and team. I wanted to come back to the whole investment thing because I think that we can spend an entire session around how investing in hydrogen technologies is very different to investing in a very established technology. So I wanted to delve a little bit deeper into, you know, how you view or how is it different to a traditional investment. What are you looking at in terms of the success criteria? You mentioned that you’re expecting, you know, the market to be able to stand on its own in 8 to 10 years’ time. Is that different to what a normal quote unquote normal investors or investment bank would be looking at?

Michelle Robson [00:25:19] Yeah. So I think well, there’s a couple of different questions there. So first, just to clarify in terms of our expectations that exit and not necessarily that we’re going to be selling into a mature market. So we are an early stage venture fund and so we will have, you know, the life of an early stage investment. So we’ll invest at what we call a Series C, which might be when something has, you know, a prototype available for us to be able to have a look at. And we will, you know, we will typically exit post revenue, but may well be before the company is cash flow positive. So you’re exiting at a value inflection point at which the market has sufficient belief in the product to be able to pick it up. That’s when a venture fund is going to be exiting. But infrastructure investors, institutional investors, you know, they’re all still going to be maintaining their holding and they’re going to see a value, their own value inflection point. It’s just that the venture part, if you will, has run its course and the venture has been able to exit from the business. So I think that’s quite an important point, is we’re not exiting at the point at which this company has sort of plateaued. We’re exiting where the company has still got significant growth potential in front of it.

Joyce Grigorey [00:26:38] Okay. And I guess, is the investment in a hydrogen technology very different to the infrastructure because, you know, obviously that’s much more long lasting, correct?

Michelle Robson [00:26:49] Yeah, absolutely. Absolutely. So you can maybe think of us as being a good handoff to either private equity or to, you know, to an infrastructure player or potentially to an IPO. So, you know, we have supported a company through the first 8 to 10 years of its life. But, you know, there’s still significant opportunity for growth in terms of product, geographies and the like. So what we are looking for is a technology or product or a company that we believe the market will want to adopt and to pick up by the time we come to exit in some way between 6 to 10 years’ time and for the for the market to pick up that technology and that product the market needs to feel comfortable that at scale it can be cost competitive with existing solutions. So we’re not saying when we exit it will be, but all the people that we’re selling to have that confidence, that’s where it’s going to get to.

David Linden [00:27:47] Just ask a quick follow up question to that, Michelle. Is the implication of what you’re saying there for the hydrogen space that it is still too immature? For a normal market assessment, if that’s the right phrase to use. Because we do have a huge amount of interest and different players getting involved who aren’t traditionally in, getting involved in very what we call venture type investing, right? They are established players. Let’s just use that phrase as an example. And the hydrogen market, if you were to look at it, it’s still at an inflection point of sorts. So is hydrogen a little unusual in that you’ve got, well, let’s call them strategic players or large corporates, they’re getting involved in this space with the belief that they can make returns in that market, not in the next 6 to 8 or 8 to 10 years, but now ish, essentially, right? And so, is the market really appropriate and all that right now, or is this still a ventures’ market and it’s actually more appropriate for venture capital to hand over to PE to hand over to a strategic, as such? The reason I’m asking the question is, of course, what you’re describing and what you’re involved in is still very early stage. But is that because that’s where the hydrogen market’s at? Or is that just because you’re a venture and actually hydrogen, as the market is now, has moved to a stage where it does make sense for strategics to come in and say we can make X percent returns and then the market’s big enough for that type of player to be there.

Michelle Robson [00:29:42] Yeah, it’s a really good question, David. And all of my comments have been with respect to our perspective as a venture player and the opportunities that we’re investing in. Yes. In terms of the hydrogen market, you’re absolutely right. It is a nascent market. It is an evolving market. But we use hydrogen today. There is absolutely opportunity to green the existing hydrogen that we use today. So hydrogen is predominantly at the moment used in oil refining. And there is opportunity to green that, there is opportunity to green the amount, the production of ammonia. So ammonia is produced today. It uses natural gas. You replace the natural gas with hydrogen and instead a green source of hydrogen, and instead you have green ammonia. So there is absolutely an existing market today. And that is why we’re seeing institutional investors very interested in these first kind hydrogen projects. So absolutely, there is opportunity there, but we’re at the very beginning of the energy transition and we’re at the very beginning of understanding the role that hydrogen can play as a broad decarbonisation agent. As a venture fund,  we can absolutely support with those initial abatement cases. But we’ve also got in mind, we have a view to a mind to all the other applications that hydrogen can play a significant role in decarbonising so – and not trying to have our cake and eat it too – but what I’m saying is that, yes, it’s an emerging market, but it’s absolutely ready and ripe for, you know, for the more established players to be looking at today.

David Linden [00:31:20] Thank you.

Joyce Grigorey [00:31:22] Yeah, because one of the one of the key comments that we keep hearing when we go to conferences is, you know, we need investors on board. You know, we need the governments to provide the funding. But what you’re saying there is that actually we need a range of different investment solutions, you know, for the different applications, for example, you know, much more the bigger banks might be working with the refineries. But certainly there’s room for venture capital companies that are looking more, kind of, emerging type of technologies, less established. And so therefore, more risk, which venture capital firms are much more willing to take on?

Michelle Robson [00:32:04] Yeah, absolutely. And I, I think it probably goes back to the technology question that you asked me previously, and I said there’s three different ways that we engage with technology, one of which is improving the existing technology that we have today. So there is existing electrolysis technology that we have today. We have existing storage technology to that we have today. All of these we can deploy on those big projects that are being set up. The role that venture can play is in providing next of kind or next generation technology. So improving what we have today and plugging the gaps that we know exist. So for instance, around the midstream where there is a tech gap and that’s where, you know, venture can play a significant role.

Joyce Grigorey [00:32:47] Okay. And just on that point around other gaps – midstream, is there any there any other gaps that you’re seeing across that value chain?

Michelle Robson [00:32:58] So absolutely. And that is that probably speaks more to the downstream where it’s incumbent on the industry to address some of the gaps that we see that are currently holding hydrogen back from creating a cost effective solution. So for instance, I can pick an example of the decarbonisation of long distance transportation, say aviation, and we know in that particular instance that batteries will only be able to fill a really small portion of that market. So, you know, long distance aviation is going to require a require a different solution. You can’t directly electrify it. Hydrogen is one particular solution for that. But we need to develop, you know, the hydrogen power train, the hydrogen powered aeroplane to be able to decarbonise. Does that make sense, Joyce, in terms of, sort of, how we think about .There are absolutely gaps in the downstream where hydrogen solutions still need to be developed and brought to market.

Joyce Grigorey [00:34:06] No, of course. Of course. Okay. And we’ve spent quite a bit of time on the podcast series. I mean, this was really around financing. But I’m interested to to get your view around, apart from financing, what are some of the things that are really missing? What do you think is needed to be able to accelerate the hydrogen economy?

Michelle Robson [00:34:27] Yeah. So I guess if we leave the financing side apart. Look, the biggest, one of the biggest things that actually the hydrogen economy needs is the renewable energy economy. So, you know, we need wind farms and we need solar farms, we need hydropower, we need, you know, all forms of low-carbon energies at scale because that’s going to be the biggest driver of cost down for hydrogen. So, you know, seeing those investments in renewable energy is going to be a great support to the hydrogen industry. And the other side, and we touched on it a little bit is policy and regulation to support not just the supply side. So, you know, the IRA has been fantastic to support the IRA (the Inflation Reduction Act) that we’ve seen announced in the US. That’s been fantastic to support the development of supply and we’ve seen similar kinds of initiatives happening also in Europe.

But really what we need is regulation and policy that supports demand as well. So we see some of that emerging. And in Japan and Korea where we see, you know, those countries pulling renewable energies to replace some of their existing fossil assets. But having that policy and regulation in place is really important. Investors need confidence to make these large investments that, you know, they need to see in place for five, ten, 15 years. So we need, we need a really good understanding of the policy and regulation landscape and how that may evolve in the medium term. And we need, as much as possible, confidence that the public programs will be maintained as previously committed to. Any backtracking just undermines investor confidence and it makes it that much harder next time round, you know, to convince investors to support these new initiatives.

Joyce Grigorey [00:36:31] I’m interested on your view on REDII and potentially REDIII amendments. Do you think that that’s enough to spur on additional hydrogen in renewable fuels or do you think we need something more?

Michelle Robson [00:36:45] Yeah, I think look, there’s some really interesting initiatives that are going on. You also have the Global Hydrogen Initiative in Europe as well. As much as we can do to support demand and to stimulate demand will be very helpful for the hydrogen industry. So we need, you know, we need obviously to encourage supply, but we also need to find ways of helping incumbents to adopt hydrogen and low carbon alternatives into their supply chains. So whether that’s through stimulus packages or other creative measures of giving the demand, you know, the offtakers, the ability to be able to adopt these solutions. And when we see that’s been critical.

Joyce Grigorey [00:37:32] And if you had to order that because you obviously can’t, or maybe you can actually incentivise the entire demand, but there’s so many end uses of that. So if you had to, you know, if you had to order which demand segments you would focus on first, what would that look like?

Michelle Robson [00:37:52] The specific, that’s a great question, Joyce. Specifically for the hydrogen space, I mean, we always say this, but you want to put hydrogen in the place where it’s going to be the most useful. So if we step back a little bit and you think about using renewable energy resources most effectively, you want to directly electrify what you can directly electrify most easily. So you want to direct all of your green electrons, your low carbon electrons into direct electrification. So where you want to put your hydrogen and where you want to put your ammonia and the rest of that is those areas where it’s very difficult to directly electrify. And that leads you to things like industrial applications, so into ammonia, into potentially into steelmaking and other forms of chemical production. And it also leads you into things like, as we were talking about before, long distance transport size and long distance aviation and container ships, you know, and other large shipping applications and potentially in some regions also things like long distance trucking. You know, those are the areas where it’s going to be very challenging to directly electrify and therefore hydrogen and its derivatives, so ammonia and methanol, synthetic fuels are going to need to be the solution for those industries to enable us to fully decarbonise.

Joyce Grigorey [00:39:16] Is there, is there a particular area that’s next for AP Ventures, is it steel, is it mobility, in trucking, planes?

Michelle Robson [00:39:26] So I mean we we’re really interested in all of those. We’ve got investments in, we’ve got some investments in marine and aviation, and we are continuing to take a look at that space. I think the area of leveraging hydrogen and carbon to create replacements for where we use fossil fuels today is extremely interesting. So replacing fossil carbon with alternatives I think is very, very interesting. And whether it’s power-to-chemicals, power-to-plastics, whatever that might look like. And then yes, continuing to look at that long distance transport space as well to see the most cost efficient ways of decarbonising that space. That’s very much an interesting area for us.

David Linden [00:40:16] I mean. Yes, P2X. I think it’s the kind of all-encompassing phrase we end up using. Some countries are certainly further ahead than others on that one.

I think we need to wrap up in just a minute, Michelle. But I did have a question for you around the current situation that we’re seeing in sort of, you know, energy transition markets and all energy markets, actually, right. We’re going through a very interesting phase around cost inflation issues, around, you know, expense of finance, etc., which is jolting a lot of what you call the more established, but you know, other markets as well. And so that’s really putting, you know, the energy transition on warning in the sense of, right, okay, this is something going to cost people. It’s putting projects in danger of not moving ahead because suddenly they don’t make any sense anymore because you can’t get the finance, or the materials you need to produce them are too expensive. You know, as I said before, before we started recording. But, you know, I talk about we also do offshore wind. I mean, it’s a real risk factor that that industry goes through a phase of pause rather than evolution and growth. And, actually, people will focus on things they know rather than take risks in this space. So just in terms of where we are at right now, in terms of a macroeconomic situation, do you see that impacting hydrogen in a way that’s either positive or negative? Or is this just something that, you know, look, it’s impacting some areas for hydrogen. You know, it’s called it’s pathway. It’s got this growth and you don’t really need to worry about it.

Michelle Robson [00:42:03] Yeah, it’s a great question, David. And I guess there’s two components to that. There’s how we see it versus other venture areas and then how you see it sort of more broadly in terms of an investment space. And, actually, hydrogen in the venture sense has actually held up quite well in terms of decarbonisation, continues to be a very strong thing for venture investment. And we’ve continued to see a lot of venture investment in the decarbonisation space.

Now, but more broadly, the point on what you’re making around hydrogen and how it needs to be, at the end of the day, it does need to be an economically sensible solution for the market to adopt. Absolutely. And we have seen renewable energies come under pressure. You know, obviously what you’re saying about offshore wind, we’ve seen those auctions fall over with no one bidding and, that is yeah, absolutely, that is a concern.

We do, though, see this as being a very long run transition. I mean, we’re talking about at 2050 and we can’t expect it to be linear. There are going to be sort of ups and downs on our way to 2050. So that is one thing that we need to we need to maintain our nerve. And the other thing is we just need to be mindful of the costs of not transitioning. We see horrific natural disasters on a very regular cadence, and these are constant reminders of the threats posed to our existing asset base cities, industries, the like of not transitioning. So the costs are very real. So we are not ignorant to the fact that, yes, there will be you know, there will be costs to transition, and we need to make sure that we are very sensible about when we’re undertaking the transition and that we are making sure that we are only putting forward economically viable alternatives. But we also need to keep remembering that the cost of not transitioning is far greater.

David Linden [00:44:14] Absolutely. Absolutely. And I thank you for that. And so certainly, you know, there’s always a moment when something happens like a cost inflation with all so people suddenly start to worry, but then kind of forget that it’s a multi-year transition and it’s just part of the pathway. It’s as you say, it’s not linear, it’s not linear. That’s what makes our jobs interesting as well, I guess.

Michelle Robson [00:44:34] Absolutely. Very interesting.

David Linden [00:44:38] Wonderful. Thank you, Michelle. Thank you for sharing your thoughts on AP Ventures. What would you do, but also in the hydrogen market and how you think about things. Really interesting. And I really like the, kind of, the tech, market, team. I appreciate, that’s a common thing maybe for all investments, but it’s good that we think about in the venture space, but it’s really useful for here as well. Just describing and explaining what you need to think about and how we need to think about it. So really appreciate your time and thanks for coming on to the podcast there.

Michelle Robson [00:45:09] My pleasure. Thank you very much for having me. I really enjoyed the discussion.

David Linden [00:45:13] Super. And thanks everyone else for listening as well. Hope you enjoyed it. Please make sure you subscribe. Give us a great rating and share with your friends. And Joyce will talk to you next time.

Joyce Grigorey [00:45:28] Thank you very much. Thank you, Michelle. Thank you, David. And thank you to all our listeners. Until next time.

 

 

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