Decarbonising the Energy Sector with Hydrogen

Gareth Baker: Welcome to the Natural Resources Forum and Sparkland and Stock Exchange Issue of Services Platform. My name is Gareth Baker, I am a Partner at Gowling WLG and I am also the Co Sector Leader of our Global Energy Sector Team.

Today, I am delighted to present a discussion on decarbonising the energy sector with hydrogen. Well, I am joined by three speakers: Tom Bruton, who is the CEO of TCRK Energy; Graham Cooley, who is the CEO of ITM Power; and Richard Hulf, who is the Managing Director of HydrogenOne Capital.

Now before we jump into the speakers, there has been an awful lot of interest in the hydrogen market, which is perfectably understandable. There is a huge opportunity and it seems a very rapacious demand. But it is worthwhile for those coming up to the sector for the first time, just reminding the group, or educating the group as to the different types of hydrogen that exist and some of the colours, that I will shortly mention, may well come up in the discussion.

So green hydrogen is the process of producing hydrogen through electrolysis of water which is split into hydrogen and oxygen; blue hydrogen uses natural gas stream afforming where there is separation into hydrogen and CO2 and then that CO2 is subsequently captured and stored; grey hydrogen is a similar process to blue, however once that process is done the CO2 is not captured, it is instead released and turquoise hydrogen is where natural gas is broken down using methane pyrolysis into hydrogen and solid carbon.

So, following that run through of several colours of the rainbow, so now I would like to move onto our first speaker which is Tom. Tom is the CEO of TCRK Energy and Tom is going to talk to us about blue hydrogen and its role in the transition. Over to you Tom.

Tom Bruton: Yes, hi. Our interest in blue hydrogen stems from a starting point. We are involved in the gas sector mainly in Africa and Mozambique principally with a couple of places in the Middle East. We, in 2017, set about looking at what next, what if you were developing your gas resources? What was the direction of the industry?

So talking to regulators and buyers and around the world, it was clear that there was a shift in the energy matrix and it was looking more and more likely that that shift was towards hydrogen and that has been proven over the last three or four years. There has been a huge move towards hydrogen and being hydrogen ready. If that was the case, how were we going to position in the market? If our first gas was coming on stream in 2026/2027, our long term contracts will finish in 2035, if the market has moved to hydrogen at that stage and we do not have a strategy, how do we deal with this?

So we start looking at blue hydrogen at that point. So, in looking at blue hydrogen you have to look at the ability to produce blue hydrogen under steam methane form. This is not new technology, it has been around for about 50 years. What we are looking at is an enhanced form of steam methane reforming which allows us to capture power more efficiently, much earlier in the process. Actually to end up with a usable carbon rather than carbon which is just going to sink into the ground, back into the ground.

The next issue is developing shipping and transportation solutions because, in hydrogen today, these solutions do not exist. So for the last two or three years we have been designing ships that will transport hydrogen and deliver the hydrogen to the markets that require it. The first two ships that we have designed have gone to the classification societies at the moment for approval in principle before they will go to the ship yards.

And then it is looking at key markets. The two key markets that we are looking at are the UK and South Korea. The UK has positions of low hydrogen as part of its energy mix going forward. They were announced in the UK several SMO plans we would slights disagree with the SMO plans in the UK because the baseline economics. The better decision from the UK government. The second market we will focus on is South Korea. South Korea's hydrogen economy pathway is probably one of the that's better to find than most governments, they have a very clear pathway to where we are trying to get and it is focused around fuel cell electric vehicles and they have a plan to go from where they are today which is roughly 200 hydrogen charging stations 2024 / 2050 hydrogen charging stations and to do that they will need five million tonnes of hydrogen per year and of that there are five million tonnes, roughly 50% will be imported and blue is always part of their mix, so yes they are looking at green and yes they are looking at turquoise, grey, but blue as one of the elements of the energy mix will always be there. So that is our starting point but a lot of the technology that we are developing is agnostic about the current hydrogen itself because it still needs to shipped, it still needs to be distributed and that is where our focus is.

Gareth: Great. Thank you very much. Tom I suspect that there is some … certainly I have got some questions arising from that summary but I was proposing next that we talk to Graham and Graham perhaps … well … first of all I will introduce you. Graham is the CEO of ITM Power and Graham ITM Power is a name that has come up very often in the hydrogen story getting a lot of coverage. It would be interesting if you could talk a little bit about ITM Power, its positioning, how it has developed and to get your perspectives on the hydrogen market going forward.

Graham Cooley: Thanks very much for having me, so I am Graham Cooley, I am the CEO of ITM Power. I have been the CEO now for 12 years. I have background in the power industry so I was development manager at National Power and then International Power and in particularly concentrating on energy storage so I've worked in super capacity that is batteries, flow sills, fuel cells and hydrogen, so a 35 year journey for me personally and ITM has been designing, researching and now building and operating electrolysis equipment for the last 20 years, so it is not new industry for us.

We moved in the first Monday of this year to the world's largest electrolyser factory which is a capacity of 1000 megawatts, 1 gigawatt per annum. We have a backlog of projects now of 124 million. We tendered over the last 12 months £435 million worth of capital equipment.

In October we raised £172 million on the London stock market. That was two and a half times oversubscribed and actually we had a phenomenal response from capital markets and I would say that the capital markets have a really deep understanding of hydrogen and its use in the energy transition.

We announced a couple of weeks ago the sale of the world's largest electrolyser which is going into the NUON chemical park in Germany, a 24 megawatt machine. We have been working with Orsted and Phillips 66 in the Humber side, we are doing a front end engineering design for 100 megawatt electrolyser and was delighted, only a few days ago now, to see the announcement from Shell that they are expanding out 10 megawatt project which is at the Rhineland refinery to 100 megawatts in size and I would point out that 10 megawatts at the Rhineland refinery makes just 1% of the hydrogen that they use at that refinery.

In terms of the market side and what the entry markets are and the way that ITM have used this, we formed a partnership 18 months ago now with Linde, so Linde are the world's largest speciality gases company and the world's largest EPC contractor in the area of grey, and we formed a 50:50 joint venture with them and we bid with them into the industry that is replacing grey hydrogen with green hydrogen so refineries ammonia and methanol, metal streaming, and so on. And as I say working very closely with them with the £435 million of equipment. That number is a number we have put out for tonnes a year and it is actually a very good measure of activity in the market. These are not press releases, they are international commercial tenders and we bid against them on fixed price quotations which means that there have been a lot of engineering work involved in specifying on some projects. With a platform we used for Shell product we did a 2 megawatt module, we are now moving to 5 megawatt modules we worked with Linde on pre-engineering 20 megawatt trains and we put those 20 megawatt trains together to bid for turnkey plants at 100 megawatt level and we are bidding now absolutely on a regular basis 100 megawatts in scale, so if you go back ... periodicity action is about two and a half years, if you go back two and a half years everything we were bidding was at 10 megawatt level. You go a couple of years before that it was at 1 megawatt level and now we are seeing press releases about gigawatts scale electrolysis plant. So we have a modular technology, modules are at 5 megawatt level. They are of a magnitude larger than the modules that are used in a battery plant for energy storage, of course they are somewhere around the 44 watts in size. So I mean an amazing time for green hydrogen right now. You will have seen the announcement on 8 July 2020 from the EU and that announcement was that they are backing green hydrogen, 15% of the one trillion euro green recovery so 150 billion is for green hydrogen, 100 billion that's 10 billion a year for ten years for CFDs, which bridged a gap between green hydrogen and grey hydrogen and today in Europe we used 400 terawatt hours of grey hydrogen, mainly ammonia refineries, production of methanol and some metal streams.

So just a final point refineries look like they are entering the market right now. The reason that refineries in the entry market is because all refineries in Europe were included in the renewable energy directive and there is an obligation on refineries to make 14% of their product renewably over the next decade. So if you look at that market, it's a huge market. As I said 10 megawatts at the Rhineland refinery is 1% of the hydrogen so that refinery needs a gigawatt electrolysis to decarbonise the hydrogen and that's just one refinery of one oil and gas company.

Gareth: Great. That just really does illustrate the size of the opportunity that is out there, and as you say, it's a fantastic time for everyone involved in green hydrogen as well as the broader market.

Our final slot is with Richard Hulf. Richard is the co-founder of HydrogenOne. HydrogenOne is a fund that will be investing in the hydrogen market. Many different aspects of it. Richard it would be get your perspective, the investor's perspective on where the opportunities are for investment and give a sense of where those are both in the short, medium and longer term.

Richard Hulf: Yeah thanks for that introduction. My name is Richard Hulf. I am the co-founder of HydrogenOne Capital with my partner JJ Traynor. We set this business up last year as a company that will launch funds now and over the next few years that will invest exclusively into the hydrogen space and that will be listed companies, like Graham's, there will be private companies as well. There are as many of those as there are listed companies, in fact more. We will invest into electrolyser makers, fuel cell manufacturers, the sort of the core builders of the sector and as the sector builds out into transportation, into storage, into a vast number of applications. The reason that this sector has really kicked off and if you look at the sort of hockey stick performance of a lot of the listed shares over the last few years that have been around a long time and know what they are doing, they have been at this for years, but the thing that has really changed more recently is legislation, global action by a number of governments around the world and the UK is a little bit behind Europe and a number of other locations that are forging ahead to ban the manufacture of internal combustion engines as we know by in the UK that isn't a particular long a way in industrial terms and then you have got the existing uses of hydrogen that Graham already mentioned that, you know, as a hydrogen use and desulphurisation in the refinery sector, in a molar production which feeds into the fertiliser manufacture around the world into a reducing agent in the steel sector and at the moment that's all grey hydrogen, it comes from steam reforming as we were talking about earlier which is a very polluting process and in a lot of locations where this is going on all the companies that are involved in this activity have made commitments to go to, to net carbon zero by 2050 and to make big efforts to do that before. So, as an investor there is a market there right now in the decarbonisation of the existing industry, so at the moment we are producing about 70 million tonnes a year of hydrogen and that's all got to become blue and green. So there is a ready market to invest into and some of the projects that Graham mentioned are already doing that. So, and the green part of this sector has really become active because of the massive growth in wind and solar power which is available around the world and in particularly in Northern Europe when we are well positioned in the UK and in Northern Europe to utilise wind power to make green hydrogen and that goes hand in hand with the Paris climate ambitions to achieve net carbon zero and to reverse the pollutions that we have already made, so you've got a very fast growing market which is underpinned by legislation with a large number of participants that have already been at this for years who know what they are doing so it's ready to invest, that's what makes the sector so interesting. Then beyond the conversion of our existing hydrogen sector, hydrogen as a carrier, as a fuel itself is growing in itself and if you just even look at the European Commission's plan to get to this 40 plus 40 gigawatt capacity of electrolysis just in Europe alone and it's probably at least double that globally out to 2030. You have also got a route map to see that this sector has got real legs. If you start to project the potential revenues that all the companies that you can see producing electrolysis like ITM, like others, like the private companies, they are going to have to grow enormously to reach those targets which makes the sort of initial jump in share prices a little bit shocking but then when you look into where that has to go out to 2030, its multiples of what we have already got. So I am just giving a lot of information about, you know, what makes this such an investable sector right now.

Gareth: Thank you Richard. Some questions. Tom I had question for you. This is perhaps slightly in a UK context but I think it applies more widely, even in the last week we have seen lots of announcements around blue hydrogen in the UK, we've seen a big statement from BP in relation to a site in Hull, Saltend, the site I know quite well and also Equinor have made statements of intent around investments into Teeside. So it seems that blue hydrogen is very much on the agenda at the moment. I was interested to know what attracted your organisation TCRK to blue hydrogen and how do you see the pathway to blue hydrogen becoming an important part of the energy mix?

Tom: Well we were attracted to blue hydrogen because as our starting point we were in the gas sector. If we don't develop a solution to be able to use gas then we die, it is simple as that. We see blue hydrogen as a key part of the transition. I think it's something that can be produced now at a price point that will drive the industries to use hydrogen. I guess that's where we would see it coming from. We see that there is … looking at the pricewise that the regulators are looking for to build this transition over the next 20 years, blue hydrogen sits into that. If you look at Korea, even though 2024 to 2050 they see blue hydrogen as part of the mix. It may not be 100% of the mix and we don't see it as 100% of the mix but it is certainly 30% of the mix of air hydrogen matrix. If you look at the UK, UK probably roughly the same, it won't all be green, it won't all be blue, it won't all be turquoise, and it will be a mix.

Gareth: Sure and you touched on price and policy there and this is perhaps a question for the broader group as well. What outcomes and policy interventions are you expecting, obviously we are seeing some work being done by bays in the UK but listening to the work that you have done in Mozambique and the Middle East and possibly other territories that you are looking at, I am interested to know what the UK can learn from, well from other countries in this regard, you know, what other policy interventions that will make us, or set us on the right path in terms of this being a good growing developing market here?

Tom: I think as far as blue hydrogen is concerned, the UK has made some interventions already, that's why you've had a stream of announcements from BP and Equinor and the companies that you say. Interventions in the markets that we are producing in, they are developing markets, we are not getting interventions from, and you know, local governments or the IOC's. What we are trying to do is to ensure there is a local outcome for a developing gas industry there. I think going back to a comment I made earlier, we are trying to develop this without relying on subsidies. I think one of the problems I see in the hydrogen industry at the moment is that there is a lag in adoption and a lag in development because people are waiting for developers, the industry is waiting for government to set a policy on subsidies or to put a price on, put a carbon price in, so you have emission reductions of where we are coming from. For us it's a commercial thing. We can reduce hydrogen at a price that regulators need to get to and we can combine that with a carbon catcher that is sound and we can use that carbon, we can sequestrate that carbon. That would be our focus.

Graham: Can I jump in here would that be ok? So the first thing to say is if green hydrogen is the only net zero energy gas, blue hydrogen isn't at zero. To implement blue hydrogen you need three infrastructures, you need to maintain the use of the gas and natural gas infrastructure which is of course the reason why the gas industry are so interested in blue hydrogen. You then need to build a separate hydrogen and CO2 infrastructure and then you need to store the CO2, and you will be storing huge amounts of CO2 for generations and somebody has got to underwrite those CO2's stores for a very long time. You don't make any CO2 if you produce green hydrogen. You also don't absorb it in the oxygen from the atmosphere. We know green hydrogen when you split water is the only fuel where you also co-generate the oxygen. So there are five blue hydrogen projects that have been funded from the UK government, they're feed studies, they're front end and engineering and design studies. All of them are going to be asking for a subsidy and they are developing the business model so that they can put to the UK what subsidy they require. Green hydrogen has been rapidly decreasing in cost so at 4p per kilowatt hour you make green hydrogen at a similar cost to blue hydrogen and actually the cost of renewables is rapidly decreasing, so is the cost of electrolysis and I think by the time any of the schemes that have been muted are ready to be built, green hydrogen will actually be lower cost, in which case those investments may well end up be a stranded asset. You see across Europe widespread support only to green hydrogen, not for blue hydrogen, so actually the strategy being adopted in the UK which is a dual‑track strategy is actually a UK strategy right now. I can see some advantages in admitting blue hydrogen to encourage the development of hydrogen infrastructure but there are three infrastructures that have only been used, you'd be handling three energy gasses and you won't have the advantage that green hydrogen has of storing renewable power and making it oxygen.

Tom: I don't necessarily agree with SMOs in the UK, I don't think it is economically viable. The reason why I don't think it is economically viable is because the starting point of economics is NDP at GTF because they are taking gas from the grid but blue is part of the transition. We are not saying it's forever or it should be over green but it is part of the transition. If we can, as a developer, if we can produce blue hydrogen and then economically sustain a level that drives the transition, that's what we want, we want to drive a transition for hydrogen, if we can drive that transition and if we can capture the carbon and we can use that carbon in a way, and this moves slightly away from hydrogen, you've got to remember in the countries we are working in there isn't a huge economic benefit to them normally in the gas project because the LNG is liquefied and sent overseas. We started it in this project because we are trying to develop a local outcome so if blue hydrogen is part of the mix and we can produce it economically the next stage is can we use this carbon to develop a local carbon because we can use carbon to produce fire fuel so a country like Mozambique they import 600,000 tonnes of fuel every year. If we can replace some of that import with biofuel by using carbon what's wrong with that, I don't see that as a negative, I see that as positive. If we can produce, if we can sequestrate into carbon black or graphite where if we have carbon black we can produce carbon fibre so we can use carbon fibre to replace steel. Steel as a product is a fairly major polluter in how it is produced so I don't necessarily see blue as a solution for everything or everywhere but it is a solution in the markets that we are working in and it is part of the transition. It's also part of the transition in the economics and Graham I accept completely that the price of renewables are coming down rapidly and at a certain point in time green will be at the right price but green hydrogen today is not at the right price. A lot of the talk we hear, we are not trying to compete against green hydrogen as I said, I don't want this to turn into an argument, green versus blue, this has been a discussion about hydrogen.

Graham: It depends what you mean by the right price so you know you have seen the widespread of document green hydrogen across Europe, in Europe that is the strategy and actually the price of green hydrogen is declining rapidly as I said before but would you agree that one of the advantages of hydrogen is that you can use it as a storage medium for renewable power?

Tom: Yes absolutely. That's a given. I am not trying to argue that it's not effective for a store of energy.

Graham: So when you take into account the economics you are not only looking at the direct price of electricity but you are also looking at the advantage of energy storage which has value as well which you need to include. It will have an increasing value as the amount of the renewables goes up and presumably ignoring all energy storage. Well look if you are ultimately going to use a net zero energy gas which is green hydrogen you are ultimately going to use it. What governments need to be doing is investing in the technology that they are ultimately going to use so that goes down the cost kerb and it's all about we did this with solar and we did with wind you invest in the technologies that you are ultimately going to use, they are more expensive in the early days but you go through down a cost reduction kerb and the oil and gas industry is very significantly larger today than the green hydrogen industry by an astonishing amount so the fact that you need some incentive to get the cost structure equivalent is not surprising is it?

Gareth: Perhaps I could just soak away a little bit into the question of supply chain. ITM Power obviously Graham is a very well established and known name in this space particularly with your cornerstone investor. If you compare or if you look at the supply chain particularly, you know, pick any of the offshore wind, onshore wind and solar, the UK really did fail at the prime contractor level to build a credible proposition there and certainly all of the work that have done has involved German, Spanish, other contractors coming in and doing that work or Nordic on wind so how do you see the supply chain opportunity for the UK and given where you are starting from, how are we going to get this right as an industrial strategy for the UK first of all?

Graham: It's a very good point, this isn't just an energy transition, it needs to be an industrial strategy as well and we work all over the world. We are looking at green recovery plans and actually they involve manufacturing and they involve developing products in aid of exporting products so you know from our point of view that's very important, we are clearly a British manufacturer looking at manufacturing equipment. Most of our projects now are exports so we are exporting of that 120 million … 124 million of backlog of projects much of it is actually exporting to other countries. So back in British industry as well as, looking at the energy transitions is very important. You know Boris' Ten Point Plan goes 40 gigawatts of offshore wind, 5 gigawatts of hydrogen. Actually it's worth adding that it doesn't specify how much of that is green and how much is that is blue. It does state … in the announcement of the plan, that the Ten Point Plan should also be about industrial regeneration, bill back better, manufacturing and levelling-up. So those things have all been referenced in that [unclear 36:52].

Gareth: And you've talked about technology costs coming down and if you look at the costs, well certainly in onshore wind, you know solar even more, there has been a dramatic reduction in frankly the cost of solar panels and one of the things that people were a bit frightened of was well am I coming in too early to these things so how do you see this, this supply chain, you know pricing coming through on electrolysis, you know is that something that we should be frightened of, is that something we should embrace because scale will mean that those kinds of dramatic drops are perfectly sustainable?

Graham: We half the cost of our electrolysis over the last three years. We are looking at a 40% reduction over the next couple of years but the point is this, with an electrolysis the cost of agreeing hydrogen is not nominated by the cost of electrolysis, it's dominated by the cost of the renewable power and the biggest factor from the electrolysis point of view is the efficiency. You know customers buy on the basis of price, performance and lifetime and that's true of any technology and you need to optimise all those three things at once, but we are driving down the cost all the time. You are right about solar, I mean, look the record in Portugal has just beaten the world record which has been 1.1 cent per kilowatt an hour for solar, in UAE the announcement of 1.4 cents per kilowatt an hour. You can make green hydrogen using those electricity prices low across the grey hydrogen let alone blue hydrogen and it's all about looking at the way you get the lowest cross renewable power, where you get reasonably high low factors because they are all an influence. So if you look at the hydrogen council's report which published in McKinsey model and you go to that model you can see the cost structure of green hydrogen based on electricity prices, based on low factors and based on the capex of electrolyser.

Gareth: And interesting, finally before I move on to Richard, a client I'd say came into see me but that isn't true because of COVID is was over Zoom, was talking about a world where we see onshore wind farms, where instead of having all of the expensive AC and DC kit in there, you'd strip a good amount of that out and you'd have much cheaper build and then you would have that DC kit, you'd link it up to electrolyser and off you go with private wires and all of that is going to be onshore. I just wondered if you had a view on that being a realistic business model or is it not because actually electricity generation isn't the problem right now.

Richard: First of all I'm not an expert on wind power but in all the data that we look at in terms of running the economics on the projects that we look to invest into, the economics are always more attractive through offshore and also when you just look at the global wind atlas about whether the windiest places there are mostly offshore around the world apart from the Middle East, parts of Africa, I mean really I would like to go back to some of the points Graham is making about, you know, you are talking about the input to the economics of these projects and when we run sensitivities on these projects and you end up with these little tornado charts which is you know best case MPV is in the middle and if you increase the cost of hydrogen that you are selling or reduce it or you play around with the cost of the electrolyser. They are actually the opposite to oil and gas projects where we used to run these things, a lot of this comes from the oil and gas sector, JJ and I both come from oil and gas where it was the capex, you know, you will be spending billions and billions upfront on an oil and gas project putting a platform out in the middle of the artic, drilling wells where you have got only a 30% chance of success, this is such a great sector because the risks are so low compared to that. You know, you're talking about something that you make from water, you are putting these electrolysers onshore and in some cases you can put them offshore but really it's the … what drives the economics of these projects, first of all its hydrogen price, at what price are you selling hydrogen and it kind of goes back to the earlier discussion about subsidies and pricing and I think Graham mentioned there, the way this will likely be introduced is through contracts with differences which is the way that the renewable sector and wind and solar set itself up, you know 12, 15 years ago. So that's the role of government in these things and when you talk about, I had to go back to the subsidy point again as well, there isn't a bigger subsidies centre than the oil and gas sector globally. You know, if people just think about what they pay for a gallon of petrol in the UK compared to the US, it's different because it's subsidised more in the US, it's a hugely subsidised sector. So, the other big thing on price on hydrogen is carbon pricing so the two things that really drive it from an investment perspective are price of hydrogen that you are selling and carbon pricing and it's not a big deal at the moment, carbon pricing, but when it gets introduced over the next ten years you want to be in a sector that doesn't have any carbon in it and that is the hydrogen sector, so in terms of getting investors to start thinking about how do you risk manage your energy portfolio going forward over the next ten years, you've got to have some hydrogen in there because you need to be wary about carbon pricing when it comes in and then you are going to have an early stage input from government on probably around contracts with differences in Europe, they look as if they have put a lot of money aside to help on the capex subsidy of some of these projects. It's going to vary around the place but very quickly you move to a point where all of these projects start to become economic even though the price of hydrogen is on green, you know may be 4 and 7 dollars to make these projects work at the moment but that is going to fall as Graham says but not so much because the cost of electrolysis is going down and we are using a base case of, you know, looking at 30% reduction over the next few years but the load factor is how often do you run these electrolysers is going to improve because in the Middle East we are seeing solar projects which obviously the load factor is but basically how often do you run the electrolyser and so that's in the daytime with solar but you can supplement that with wind as well. So load factors are improving, efficiencies are improving as the technology gets better and the cost of the green electricity is getting better, those of the things that are really driving the economics so whether the wind and turbine is onshore or offshore it is part of the equation in terms of the cost of electricity but I think it is about scale, I think it is about getting very large scale winds available to produce hydrogen because there are some scenarios that say that the problem with hydrogen is that there is not enough green electricity because we just got to carry on building these things out to make sure there is enough for direct source green electricity and the green electricity that you need for electrolysis but that's a small problem when you look at the overall potential growth of the entire sector which is underpinned by law and by industrial investment.

Graham: So we are at 3 dollars per kilogram at 4p per kilowatt hour and looking at the mid 2020' to 2030, mid 2020' 100 megawatts scale and about 1.6 dollars per kilogram which is the number that is quoted regularly by Bloomberg New Energy Finance, the Hydrogen Council and Hydrogen Europe so it's a lot lower than that.

We announced the project with Orsted and Siemens Gamesa about direct coupling electrolysers to wind turbines, so to take you point about EC so you can actually and it's the basis of the project connect the electrolyser directly to the wind turbine and reduce the amount of … or rationalise the power electronics in both the electrolyser and the offshore wind turbine. We are also integrating it with the desalination equipment and you will probably know that all or nearly every offshore oil and gas terminal has desalination unit on it anyway. But actually desalination to derive your fresh water is a requirement for many countries so, Oyster the project is called, ITM, Orsted, Siemens Gamesa is about doing that integration.

Gareth: Fantastic thank you.

Richard: Yeah we are seeing some very huge projects in the Middle East that are based around this desalination and if you start to … I think the mentality of the UAE and Saudi Arabia definitely is about how do we export our sunshine. As we move into the next era, you know, we will be levelling off our oil production … I mean there is still a good business in oil and gas because the world is so geared up to work on oil and gas but, you know, there is going to be a transition and it's already under way so there is enough room for everybody here but some of the big project that we are seeing out there and we have seen a lot of electrolysis being specified out there is to take the sunshine from the enormous deserts and get over the problem about shipping hydrogen which is, as we know has to be almost at absolute zero to move it, but you can turn it into ammonia and you can ship the ammonia so there is a big business that we are looking at and this is applying equally on the logistics between Australia and Korea as we were talking about earlier and Japan, in shifting hydrogen up from Australia and from the middle east into Europe and out to the US by putting it into ammonia tankers and then turning it back into hydrogen at the other end or using the ammonia directly. So, it kind of goes back to the point about, you know, what are we doing in the UK, well we are moving quite slowly here and when you look at the investment opportunity globally and you look at the scale of these projects, as Graham was saying, you know, they are now around 100 megawatt plus and we are now looking at gigawatt so what we are worried about as investors is how do we scale up our investment capacity and how do we plan to build further funds that bring in large scale capital that is knocking on our door and to invest into these very very large projects. It's all being trialled and tested, a lot of investors still think that this is a bit science fiction and that it's a bit of an option. It's not an option, its legislation in a lot of countries, it's got to happen and that's really what is driving it.

Graham: Absolutely, I mean I may not be an advocate of blue hydrogen but I am an advocate of what the oil and gas industry is doing. Actually they are making the transition real and the oil and gas industry will be incredibly important in moving from natural gas to green hydrogen, there is no doubt about that and you need that massive mobilisation of capital and the oil and gas industry's understanding of how you put infrastructures together. We did a big project with Sumitomo Mitsui Bank looking at exporting hydro, it was joint with BC Hydro and actually exporting the energy and looking at importing these to countries like Japan and South Korea so I agree with that as well. Looking at liquid hydrogen amongst ammonia as a transport will be very important.

Gareth: Listening to the project that you are either involved in for all of you, or some of you, they are very very big and vast projects and there seems to be you know an appetite perhaps for an investment a bit level orders of magnitude so Richard, you know, how do you see that, I mean some of these initial funds, you know, will they be looking at supply chain, will they be looking at suppliers to supply chain, is it consultancies, is it you know, people want to get involved in investing in this opportunity, you know, what are the ways that people can get in there?

Richard: Yes the interesting point about how the sector has been set up to accept capital and to move assets between different parties, in the oil and gas sector there were well known investment banks that you would talk to almost like estate agents, if you wanted to buy into a project or an asset, the hydrogen sector is very new and it doesn't quite work like that yet which is why, you know, we feel like an early mover into this space in that it is literally just virtual shoe leather, talking to people, phoning people up, pushing yourself into projects. The thing we find quite interesting at this point as we are going from sort of 5 megawatts to 100 megawatts is the for a minority investor like us into a project we'd be looking … and it could be a blue hydrogen project as well with, you know, perhaps there could be a carbon cap and storage taking advantage of the sum of the depleted oil fields in the North Sea, that all makes sense. Those sort of projects, you know, we are looking to invest probably tickets of 25 to sort of 50 million max. Some of the bigger infrastructure funds that will help this sector as it goes from 100 megawatts to gigawatts have got minimum investment sizes of 200 million so there is a need now for fast moving, slightly smaller funds like the sort of funds that we will be developing, so we are interested as a growth investor and we've got Arup partners working for us to help us to sieve through these projects to help us to manage this early stage sort of development risk which is a very important part of what all of the providers like ITM are doing, it's about sort of systems integration which for a lot of investors concerned about the commoditisation of the sector, that's very hard for it to happen because of the vital sort of infrastructure role that these components are taking, you cannot commoditise these sorts of projects because there is so much that goes into the engineering with blue and green on the sort of systems integration, development, the risk management which is why it's at the high end and the barriers are quite high but that's how we see that at the moment.

Tom: Can I come back on shipping … and it's the crossover between blue and green. Earlier in my comments I said that there's a technology pathway. We get to a point where we're agnostic about whether it's green or whether it's blue because wherever you are producing it you are going to have to get it to the market that needs it. So the two ships that we designed which are now with the classifications agencies at the moment, one is a LOHC which is a liquid organic hydrogen carrier and the other is a dehydration unit. So we look at various ways of transporting the hydrogen and I take the point that in 15 years' time we will be transporting in liquid hydrogen form but we are not there yet. The first liquid hydrogen ship is on its way Australia to pick up a cargo at the moment, it is 1200 cubes which is a tiny ship. The ships that we will use in the initial stages will be delivering probably about 20,000 cubes but it will be combined with ammonia. We did have a look at Tulane but we've actually gone for ammonia and a dehydrogenation unit as well, so there is a crossover, whether the ships we are designing and the ships that we will build, it will make no difference whether it is green and blue or turquoise. Whether you are producing and surely when you are producing in Australia it still has to be brought to the market, so yes while our background and our focus is blue in the end technology that we are developing will be agnostic to the colour of the hydrogen.

Gareth: I just have a final question before we wrap things up. There has been a lot of discussion about the types of investment where, you know, either we are seeing, you know, large institutions like the oil and gas sector making those investments or, you know, we are seeing equity come into this space. We haven't talked about debt at all today. Obviously, you know, debt has been significant in terms of things like the offshore wind market but really underpin by contracted revenues and that's enabled, you know, some very cheap debt particular the project finance to have role so, you know, do any of you see a role for debt, if you do, how, or is it later, you know, because debt should help this transition as well, is there any observations from any of you? Richard perhaps?

Richard: Yeah, it goes back to what I just said I think there is a big role for debt when you are scaling up from 100 megawatts to a gigawatt that gives you 1000 megawatts because you've got … probably you need an offtake agreement in place and that's what slowing up some of the projects around the world at the moment. Projects are evolving in little clusters, you know, when you see clusters in the UK, you see them around the Dutch ports, you see them in parts of Australia and they are usually working around a local steel mill or a chemicals plant or a refinery where you can agree what the hydrogen offtake price is going to be amongst the local players but as these clusters increase and they start to join together then you will start to get a hydrogen market price starting to get established and at that point I think you will probably start to see large scale debt coming in, but at the moment the debt is really going into the companies, I mean, you can easily debt finance the building of a new factory, the thing that we are really keen to look at when we are investing into companies that are making electrolysers and fuel cells is that they have done what ITM have done, you know, they built their first factory, have you got space for another two or three factories and we can get debt into those projects to build the factories to build the components is ultimately underpinned by the grey hydrogen industry that's well established turning itself blue and green. That's where a lot of the electrolysis is going so that is sort of debt fundable but the projects slowly but coming a bit later I think in terms of project finance and our fund is mostly focussed on equity.

Gareth: Graham, are you preparing yourself or ITM taken this view already about, for example, performance warranties that are offered on your kit, are you debt market ready, this is the sort of areas that debt tends to focus on, you know, certainly we've learned that from the project finance experience on renewables?

Graham: We, first of all in the after sales support market we are developing an important part of our business is that 'operate' so we have a control room where we monitor every one of the electrolysers in the field 24 hours a day with two skilled engineers and we have a control room where you can see every clamp and valve and solenoid in those. We gather data and put that into rams modelling. The rams modelling then not only gives us the ability to be continuous improvement but also gather data that is useful for the customer in terms of operating points and all of those good things. So we are developing a very strong business in the area of offices support. Warranty is part of that and so is the continuing relationship with the customer. Debt will come into any industry, I mean it's just a commercial decision and whether you think it's early in this industry or not and it will gradually appear and it's an instrument that, you know, if offered all the time by customers and also by partners so I don't see the hydrogen industry in terms of financing assets being any different from any other industry.

Gareth: And Tom just concluding with you, I have a sense that, you know, whatever the colour of hydrogen, but when you are talking with debt and other investors that what one must spend an awful lot of education time with people coming in or trying to get people in, is that how a lot of your day is spent?

Tom: Yes, and it's actually convincing partners because debt will follow the market as Graham says. If we want to build a ship for 200 million dollars and we have a ten-year royalty contract, final debt for that is not going to be the problem. The stage we are at is convincing people in the market, and we have partnerships with already that the next stage is hydrogen so together we will finance the prototype ships. We are not quite at that stage yet but we would go to the general debt market looking for debt. I don't see that as a gating factor because debt will follow market.

Gareth: Great. Well we are just about at time so Richard, Graham, Tom, thank you very much for your time today. It's been an enjoyable and thought provoking discussion and, you know, the opportunity is massive for sure and I am really looking forward to seeing how this market develops and it's going to develop at pace that's for sure. Thank you everyone.