Gowling WLG associate Jimmy Burg interviews Myron Dzulynsky, co-leader of the firm's global Hydrogen Group, on what the hydrogen buzz is all about and Gowling WLG’s ambition to poise its clients for success in this nascent market.
In the past few months, there has been tremendous business, political, and media excitement about hydrogen. What is all the fuss about?
Hydrogen as an energy source or carrier has been around for a while. I think as the world focusses on reducing carbon emissions, a greater focus on hydrogen makes sense. For governments, meeting emissions targets also looms in the background. For industry and investors, broader societal focus on ESG also plays a role. For investors specifically, hydrogen may also be viewed as a new or newish investment sub-sector. While the economics of hydrogen today may not be attractive to some investors, I suspect that nobody wants to stay fully on the sidelines and miss future opportunity. The media, of course, both reports on the buzz that it is seeing, and in turn creates further buzz.
What are your thoughts on the different colours (i.e., grey vs green vs blue) of hydrogen based on their production methods?
I don't think anyone is talking much about grey at this point. While the ultimate goal is to maximize green hydrogen, there is also a lot of talk about blue hydrogen, especially as a bridge to green hydrogen. Even the Canadian government acknowledged that reality in its recent strategy paper on hydrogen.
Do you see the transmission and distribution of hydrogen facing similar technical challenges to oil and gas?
I may be wrong, but I would actually analogize even more to the use of electric cars, though I would suggest that there is a further challenge for hydrogen.
The concept of an electric car does not work if there is nowhere to charge it. If there are limited charging options, few will buy an electric car. If few buy electric cars, they will be expensive to buy. If there are few electric cars on the road, any investment in the buildout of charging infrastructure needs to be amortized over a smaller number of users.
Transitioning to a hydrogen economy has similar problems, particularly with respect to green hydrogen. The further complication for transition to hydrogen is that transportation of hydrogen, particularly large-scale transportation of hydrogen, has inherent challenges that at this point cannot be fully addressed using existing oil and gas transportation infrastructure.
Gowling WLG Hydrogen Group
What is the group hoping to achieve?
We are a firm that responds to changing market conditions. Hydrogen is poised to alter, or at least influence the global energy mix and we are committed to embrace this changing landscape.
We will support our clients in all aspects of the hydrogen economy, across all industry sectors. Whether they are incumbent hydrogen players or new entrants to this field, we are committed to providing the gold standard of legal services across all practice areas (i.e. Corporate, M&A, intellectual property, regulatory) related to hydrogen.
What kind of expertise does Gowling WLG intend to bring to this sector?
We have professionals who have been involved in the industry for years. We also have significant experience in assisting clients with developing and financing major projects involving gas production and transportation, as well as the technology aspects that will play an important role in moving the hydrogen industry forward. Finally, we have significant experience with government and regulatory matters, both of which will be important as the industry moves forward.
Which markets and jurisdictions will Gowling WLG engage with?
We are market agnostic, and will engage with all relevant jurisdictions in the hydrogen economy. Currently, the leading jurisdictions are California, South Korea, Japan, and China. However, more than 30 countries now have or are developing hydrogen strategies, and we expect these numbers to continue increasing.
Corporate / M&A Considerations
What kind of M&A considerations are relevant to hydrogen?
We are still in a nascent market around hydrogen. While there has been some capital markets and M&A experience, that is expected to grow. By analogy, in the early days of renewables the focus was on project development. As projects moved forward, the capital markets became more active participants in the industry. Furthermore, M&A activity increased, as early stage developers sold to players with deeper pockets or other expertise, and ultimately projects were sold to institutional investors once they were de-risked. Further, as that industry matured, institutional investors became more comfortable with development risk, and some of them formed or bought development platforms. The hydrogen industry is not necessarily identical, but I would not be surprised if we see a similar "investment evolution" apply in the context of hydrogen.
Regulation and Policy
Is investment alone sufficient to kick-start the sector?
No. The sector is currently facing a "chicken or egg" style problem: prices are high because supply is low; supply is low because there is minimal demand, and demand is low because the current price of hydrogen is high. Therefore, there are both supply-side and demand-side issues.
On the supply-side, more municipal, provincial, and federal funding will help businesses scale up their production of hydrogen. On the demand-side, it remains to be seen whether the new proposed federal clean fuel standard, and the federal carbon pricing system, will create demand for hydrogen by increasing the costs of more conventional fuels.
Global and Canadian Hydrogen Economy
How do you think Indigenous Canada can be integrated in the emerging hydrogen economy?
I would hope and anticipate that Indigenous Canada would participate in all aspects of the hydrogen industry. By way of example, there are a number of more remote communities that are currently using primarily diesel power. Query whether hydrogen could play a role in replacing diesel generators. I am also aware of at least one Indigenous group where there may be surplus renewable power generating capacity, with ample water nearby for hydrogen production through electrolysis. That does not even take into account Indigenous equity participation in projects developed by others.
What are your thoughts on the receptiveness of international markets to Canadian-made hydrogen?
Canada has long been a global energy supplier and leader, and I see no reason why Canada cannot achieve the same status with hydrogen. Canada has abundant sources of every major hydrogen feedstock, a receptive regulatory environment, and a favourable policy landscape. Further, Canada has the infrastructure and expertise to adapt its production of hydrogen as needed over time from grey hydrogen, to blue hydrogen, to the ultimate future goal of green hydrogen.
Is Canada ready for a hydrogen economy?
Yes. Canadian businesses are ready to embrace change by leveraging the opportunities that come with hydrogen in the global pursuit of a lower carbon future. Canadian governments, federal, provincial and municipal, are taking deliberate steps to spur investment in the hydrogen industry.