#13: Simon Pickup - Exploring Use Cases for Hydrogen Fuel | Teralta

Hey everybody, welcome back to another episode of First Principles. I'm here with Simon Pickup, who is the CEO of Terralta. They're a very cool company that knows a lot and a lot more than almost anybody else about hydrogen. We're going to talk about it. We'll get all into the details of his story and how he got there and what they're actually doing and what they're supplying in just a second. But before I do, I just wanted to highlight how cool it is that this video is happening at all.

The way that I found it was that my friend Andrew shared a post from Simon on Twitter. And then after I clicked on the account and basically went to Simon's profile, I saw this amazing video that he's created. We're actually, we're playing it on the side right now. This is from Simon's Twitter page. So it

goes into his background and his story, which he's about to explain to us right here live. But so you should go check out that video and go check out Teralta. But without further ado, let's introduce you to the man himself. So here is Simon. Thank you so much, Simon, for being on First Principles. Why don't you tell us who you Yeah, well, first of all, thank you very much for having me on today. And thank you, Andrew, for connecting us for this interview. So, yeah, a

little bit of background. I've been obsessed with hydrogen for my entire life. I grew up in North Vancouver in British Columbia. And this is back in a time where a company called Ballard, which is the first major fuel cell company, was started in Vancouver. And so, as a kid, I had an opportunity to spend time around a lot of the early hydrogen companies. being

competitive and being a bit of a geek, I wanted to compete in science fairs. And so I started building little hydrogen electrolyzers as a kid and became increasingly passionate about the potential for clean hydrogen and what it could do, not just for sustainability, but I thought more broadly for energy economics. And so, I ended up pursuing that. I ended up dropping out of high school to start my first hydrogen venture. Newsflash, failure.

But the second one, spent about a decade working on commercializing hydrogen co-combustion technology to make existing semi-trucks run on hydrogen. And now today, I'm the CEO at Teralta, where we build a utility-scale clean

Very cool. So let's let's get really concrete with what that means. So basically, the way that I understand it is, there's someone out in the world that needs hydrogen for something for like a chemical process or for I don't know, you can tell us about the other reasons people need it, but you they need it and you can find a way to get them it is Definitely. We're the match between supply and demand is an

easy way to think of that. We can talk about what the main uses of hydrogen are, but what Teralta does to make it super concrete is that we make hydrogen simple. Our job is to actually deliver clean hydrogen to an end customer for whatever that industrial application

So it's not, you don't have some fancy way to electrolyze hydrogen. You don't have some like big, huge pipeline that you've built that you tap people into.

It's really just any way that you can think of to get people that form of energy that they need that you, or that, you know, that raw Well, we specifically build, so we're end-to-end, we build the entire project, all the way from the production type, so in some cases electrolysis, we'll do the production, then the cleanup, and then actually we do build an actual pipeline, or in alternative cases, we've looked at doing truck delivery, but the business today is really

about solving distribution by using either existing pipeline access, or we will build a dedicated pipeline, like our first project So you would do, you would build a, like a custom bespoke or Yeah. So in, in we're specifically focused on a, on a kind of industrial waste we call like stranded hydrogen assets. So these will be groups that are, are producing hydrogen as a by-product. So they'll have electrolyzer facility already in place, but

typically they're not monetizing the hydrogen. So we'll, we come in. we will capture that gas, we'll purify the gas, and then we will pressurize it and then distribute it typically directly into a pipeline. But all of that CapEx and all of that project build is within the So let's, let's talk about why are you interested in hydrogen? I mean, I think like, it's not really something that nerd snipes

most high schoolers, but it appears it really did nerd snipe you. So I'm curious Um, I just think that, you know, in some ways, um,

energy is like the ultimate lever, right? So increasing amounts of low cost energy is really what drives GDP growth. I mean, obviously when I was a kid, that wasn't the formulation I had in mind, but it just seemed to be something that was like super important as a kid. But as time has gone on, I've really come to believe that that is, in some sense, like the big lever. And it's rare for us to find, you

know, entirely new ways of supplying clean energy. And I wanted to spend, you know, I wanted to spend my time working on making hydrogen a piece of that. Because its potential is that, you know, if we want to get to full decarbonization, in some sense, there's going to be as much renewable electricity as we can get, you know, nuclear, wind, solar, geothermal, everything on that mix. But then it's going to go first into

batteries wherever possible. And then as you get into applications that require more energy density, more storage, then you're going to look at increasing amounts of hydrogen. And so it becomes this, it's not hydrogen versus electricity, it's just maximize the electricity use, put it in the highest value application, and then where you need to, you add hydrogen. And so that becomes the basis for what eventually will become like a fully sustainable energy

Cool. And just to, I mean, this is like the dumbest question I've ever Whereas, um, yeah, so it's, it's element number one, uh, you know, on the periodic table, uh, it's, it makes, it's, it's like 90% of the universe. So it's in everything. Uh, the challenge is really that because it's bonded into everything, it costs, uh, you know, time and energy and money to, to get it out, uh, and, and use it as a, Totally. So can you talk about that? What are the normal ways that we capture hydrogen

Yeah. So today, globally, it's about 100 million tons of hydrogen production. And the majority of that hydrogen is actually made through a process called steam methane reformation. So you're taking natural gas and you're splitting out the CO2 and the hydrogen. you're capturing that hydrogen and then it goes into a variety of applications. The biggest uses of hydrogen currently are ammonia

production and then use in refining, so hydrocracking or hydrogenation. So basically, input for fertilizer for food, so absolutely critical, and then as an input for the refining process as well. So those are the biggest ones, but that's in some sense the the old way of doing it. That's using natural gas as a feedstock. What we're focused on is figuring out how to make increasing amounts of clean hydrogen. So of course, we can get the carbon intensity down

Okay, awesome. So what is clean hydrogen then? So basically, dirty hydrogen, quote unquote, would be you start with ammonia, which is what an NH four, and then you break it into the you get the hydrogen out of it. So you start with that you start with ammonia, and then you end up or do you start with methane, usually start with methane? Exactly. So yeah, so we start with methane. Got it. Exactly. And so we measure the cleanliness of hydrogen using

a carbon intensity scale. So closer you get to zero, zero carbon. I'll give you an example. Diesel is at like 80 to 90 grams of carbon intensity, and then natural gas is somewhere underneath that, around 60. And so So, starting with either, I'll call it, fossil-based electricity production or methane itself, you just automatically have a very high carbon intensity for your hydrogen, and that's ultimately what you're trying to avoid. So, the trick is, how do we

do large-scale clean hydrogen production? And typically, the main approach is that you use renewable electricity, so take like wind, solar, something like this, and then you'll run it through an electrolyzer. So you split the water, you're now using clean electricity, you split the water, now you've got clean hydrogen out. But today, clean hydrogen is about 1% of the global market for hydrogen. So, just to give you a sense of how new that is. And

in some sense, that's the opportunity. It's like, there's already a $100 billion market. You're trying to resegment it by getting the cost of clean hydrogen Okay, that makes sense to me now. So if we're starting with something like methane, which is CH4, not NH4, if we want to get the hydrogen off, then we leave carbon afterwards. So we're splitting

it apart, and we're leaving carbon, which we don't like. Alternatively, we can start with something like water, H2O, and when we get the hydrogen off, our waste byproduct is oxygen, not carbon. So, okay, that's what it means for it to be something like clean hydrogen, is that the end product after you create it is something Well, yeah, so there's no, I'll call it, dirty byproducts, so just oxygen's fine. But then also just that the energy

used through that process was also clean. So starting with clean electricity to do that electrolysis is critical. Even if you end up with oxygen, but you used, I'll call it, a coal plant for the electricity, not a great diesel generator. Yeah, a diesel generator, exactly. No, but that's a serious thing, right? That happens a Using Strata makes all of your identity tools stronger, connecting any

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providers, and get everything done in record time. Visit strata.io slash firstprinciples and get a free pair of AirPods Pro when you share your identity priorities with the Strata team. Connect today at strata.io slash firstprinciples. Let's get back to the show. Okay, interesting. And just to just so people are grounded again, I think you hinted at this before, like the importance of something like ammonia or whatever in the world of how hydrogen products

have really made modern society. But I don't think people really know about that. Do you end talking about like, you know, Haber Bosch process, ammonia, fertilizer, that whole thing, and why it's so important for everything? Yeah, absolutely. I'll definitely share this graph with you. Basically, the Haber-Bosch process enabled lower-cost, higher-volume agriculture in places which just

weren't as fertile. You could basically do this Haber-Bosch process, create ammonia, and then use that as part of the agricultural process. There's this amazing graph which basically shows world output of food and density of food production per square meter or something like this. And I want to say it's like a 2 or a 3x. It is a massive shift as a result of that process. And that's almost half of the world's hydrogen production today goes into

ammonia production for fertilizer. And so that's part of the double benefit of seeking to produce lots more clean hydrogen. Because if that process, we can decarbonize that entire process, we actually are going to end up also contributing

to much cleaner agriculture downstream from that. Totally. And I, I, you, I think you showed me this, or maybe I like just discovered it, but anyways, there's this concept called the hydrogen ladder, which this guy came up with. And I think you actually, you might have some, you might have some, uh, some beef or not beef, but like you might have some difference of opinion about which applications of hydrogen are good versus what

this ladder says. But do you mind just introducing us to that concept of Yeah, absolutely. So there's a guy named Michael Lieberich. He's a founder, actually, I think, of Bloomberg New Energy Finance. And he's come up with what's called the hydrogen ladder. And it's basically a ranking of what applications can hydrogen effectively compete to substitute. So for instance, it's like, is hydrogen good for

transportation versus, say, diesel or gasoline? Or is hydrogen good for powering an airplane versus, say, jet fuel? And so he's got this ranking of it, and broadly, you know, at the bottom, it's kind of like the worst possible uses for hydrogen, and at the very top is like the best possible use of hydrogen, largely because there's no alternative to using hydrogen. And so at the top of that list, things like ammonia production, hydrocracking, part of the refinery process, hydrogenation, those

are considered unavoidable, must-use hydrogen. So like automatically there's a market. And then I you know his I think the key thing that he's just trying to get at is that there's lots of substitutes For

for for say diesel or gasoline people talk about biofuels. Maybe we should just use straight-up batteries, right and his His I think the thing that I really strongly agree with about that approach is that it's trying to puncture You know this this idea or this this bubble thinking that like hydro will just replace everything It'll be like, oh, all final end forms of energy are just going to go hydrogen. That's not

the case. Every single segment is going to fight based on energy density, cost, all sorts of these factors to figure out what's going to be best. Batteries are going to win in some segments. Hydrogen is going to win in some segments. And so there's a scale for how good or how bad hydrogen is for

Okay. That makes sense. So when you have that, you see that list of use cases in your brain, I'm sure this list exists as well in terms of, you know, the best possible uses of hydrogen and the ones that are the furthest away, the ones you probably don't have to worry about for years or decades, or maybe even ever. So just to make that concrete for your business, do you mind talking a little bit about what those use cases are Yeah, absolutely. So, you know, I say we're focused on

what we'll call utility scale and clean hydrogen. And

so the utility scale piece of that is a first distinction there. We're talking about hydrogen in the dozens to hundreds of tons per day of hydrogen production. To put that more in scale is a lot of the focus in hydrogen has been on transportation. So people will talk about, you know, hydrogen cars or hydrogen trucks, things like this. Typical scale for, say, a truck refueling station is like one to five tons per day. And so that's, relatively speaking, quite small relative

to doing dozens or hundreds. And that's because you're trying to serve heavy industrial users, say, who use lots of natural gas, and displace that natural gas use with hydrogen. And so that's the focus. These are industrial users, steel production, pulp mills, like any large scale natural gas use, primarily either for heating or as an input, we will replace with clean In my brain, this ladder makes a lot of sense because it kind of gives us

the usefulness of hydrogen versus alternatives. But I think like intuitively, I want there to be another double click into that, right? Like there should be some sort of mental model that we have, or probably is in your brain, that tells us when hydrogen is useful and when it's not. I mean, just like thinking about it, hydrogen is extremely energy dense, but it's extremely like Yeah, so am I talking about that? Like the difference between energy density,

Yeah, so happy to. So I mean, so hydrogen is extremely energy dense on a mass basis. So like, it's, it's, you know, you know, the amount of energy that you can stuff in a kilogram of hydrogen is is in is super high. Actually, it's why when people try to work the rocket equation, why liquid hydrogen's at the top of the list, it's because it has the highest specific impulse for rockets. It's difficult to handle sometimes, and so people have chosen methane, of course, but

for that energy density, hydrogen's at the top of that list. The

challenge is that by volume, it's way less dense than say diesel or even the natural gas. And so you have to put a lot of energy into compress, if it's a gas, you've got to put a lot of energy into compressing that hydrogen into a small enough space that it can be practical. And that's been one of the, that's been a technology challenge and has been, I'd say not fully

solved, but solved enough to be commercial today. And so if you use hydrogen as a gas, They'll store it either in very large scale, like in a giant cavern, or in small scale, like a truck in a carbon fiber cylinder under a lot of pressure. And how do they actually do that pressurization? Giant compressors, lots more electricity. Yeah. And so different

techniques for doing it. Yeah. But different techniques for doing it, but it can be relatively, if it's like a giant salt cavern, which is the case for some of these utility scale projects, it can be slower, lower pressure, big volume. But if you're on a truck, then it's a lot higher pressure and you use a lot more energy to basically stuff it into these They store, typically on a truck, they store at 700 bar or 10,000 psi. It's not... Oh my

god. Yeah, exactly. Yeah, just take a good lick of scuba tank. It's way Does that mean that people generally, if they can, want to use it It really comes down to cost. To come back to your question, what is the mental model for why you would use hydrogen? I'd say the first level is, is there a focus on reducing carbon intensity? If you don't There's a lot of applications. If you do not care about the carbon intensity, there are cheaper ways to get energy. You don't have to start

with coal. You can do that. But if you're going down the decision tree and you're like, I need clean energy, you really start as, okay, well, am I using clean electricity directly or can I not use clean electricity directly now? I want some kind of energy storage and really, in a sense, hydrogen is an energy storage medium. First level of that is, okay, so if I want to use hydrogen and I want it to be clean, it just comes down to, like, how do I get the lowest cost per

unit of that hydrogen? And hydrogen is typically measured, like, different pieces of the industry will measure it differently, but one common way to do it is they measure it in kilos, because a kilo of hydrogen is roughly equivalent to a gallon of diesel. more or less. So if you're thinking, oh, my diesel is $5 a gallon, and I say, hey, we're going to get a kilo of hydrogen, it's $5. It's roughly comparable. It's like 90% comparable. So rule of thumb, a

kilo of hydrogen. So it comes out like, what's the cost per kilo, which is the same thing as what's my dollar per gallon. And Typically, most of the time you're trying to get use of that hydrogen as a gas because it'll increase the cost if you're accessing liquid hydrogen. The only reason why people actually do liquefaction typically is to increase the distribution range.

So like if you've got a hydrogen plant, I don't know, coast, right? And the amount that you can store in a gas on a trailer is way, way, way lower than as a liquid. So then you can justify that cost. But Yeah, I guess the thing that's still not totally clicking for me is that I know that

hydrogen like per kilo is extremely, extremely energetic. And so it kind of, it seems like it would be cheaper. Like, why is it the case that is not cheaper just Uh, it's, it's, so it's because the, um, so let's look, there's this, there's a, there's a, there's a thing in the industry where people use all these colors in hydrogen. So we, we, we're not personally, we're trying to move away from the use of what we call the hydrogen rainbow

and just stick with carbon intensity. Right. So instead of... I've never heard of that. I'm so intrigued. Okay. So let's talk about this. Yeah, let's talk about this. So we'll come back to cost, but let's start with the rainbow. So there's all these colors of hydrogen. So people will say, oh, is it green hydrogen? Is it blue hydrogen? Is it pink hydrogen? These are real things, by the way. And they're meant to

label certain kinds of hydrogen production. So typically green hydrogen is renewable electricity going into electrolyzers, and it's considered This is the cleanest and the best, most sustainable. Then you've got blue hydrogen, which is you're starting with a fossil feedstock, and now you've got CO2 and hydrogen coming out, but you can then capture or utilize or store the CO2. in some economically viable way. And then you net, net, you have a lower carbon

intensity. So like we had carbon, but we stored it. We had carbon and we did something, you know, to sequester it. Great. Now we have clean hydrogen. The challenge with colors is that, you know, it's not numeric. You know, you can have pretty, you can have blue hydrogen with a carbon intensity of 20, and you can have renewable hydrogen with a carbon intensity of 20. That's not the, you know, that's not the, that's not helpful from a labeling perspective, but

nonetheless, people often will use these labels. And so to come back to cost, renewable electricity typically is more expensive than fossil electricity. Renewable prices have definitely come down dramatically, but still, typically it's

more expensive. So if you start with pretty expensive electricity and you electrolyze it, because electricity is 80% of the cost of producing hydrogen out of electrolysis, you end up with pretty expensive So to give you an example, if your power is something like in the range of like 10 cents a kilowatt hour, you're going to be looking at hydrogen production cost per kilo. That's already above a gallon of diesel, for instance. And so that's been the challenge.

It's like, how do you both get the cost down and we get the cleanliness? And we can get into why that's possible now, but for a long time, that's why hydrogen has remained I would say lots of study, but it hasn't achieved the broad industry scale Got it. Okay, so I have to ask the follow up then. Why is it

Why is it possible now? Well, first of all, the incredible cost decline related to, say, solar and wind, particularly for solar, that has been the fundamental game changers that decades of investment, and in particular, We can come to this as well, the development of a financing model that used the investment tax credits in the U.S. to drive that explosion of growth. That unlock has actually created enough renewable energy capacity and at prices now that it finally actually starts to

make sense to do large-scale electrolysis for hydrogen. That's one piece of it. The second, I'll call it pillar, if you will, is that carbon capture technology has matured to the point where now it is possible to do, say, very large scale carbon

capture in a way that is both scientifically sound and actually economically viable. And then the third piece is that because of those, I'll call it carbon and renewable economics getting better, The scale of the equipment production is helping drive CAPEX savings. So we're in the beginning of a classic learning rate improvement, cost decline curve as it relates to the production cost

of hydrogen. And that's what makes it super exciting now because all of a sudden, industries which it would have been just cost prohibitive to If I think about it at the holistic level, you can think about it in terms of trends of cost, trends of technology creation, that sort of thing. It seems like the cost of electricity and the growth of renewables and solar deployments, those

are all trends that are moving remarkably in your favor. Is there any other trend that you would highlight there as really important to you know, the alignment around net zero is real. I mean, so all of a sudden, the effort of not just government, but large industry to figure out how you actually get all the way to decarbonizing the hardest stuff, concrete, steel, transportation, marine, aviation, like these are like, these are in some sense, problems that were

supposed to come later. Like, we'll just focus on clean electricity, then we'll get to the really hard stuff. We're now there. And so policy alignment, that's definitely number one. And what that has spurred tactically is that in countries all over the

world, they now have all these national hydrogen strategies. And then in different countries, there's real incentives. And I think the thing that's about to happen in the US is, if you think back to like 2000, I want to say 2006, that was the beginning of the solar investment tax credit. And there's a curve, you could just see it was like solar deployments, like flat. And then you look at the next 15 years, and it's just this

insane curve. We're right at the beginning of that, because in the Inflation Reduction Act in the US, there is a policy called 45V, and it's insane. So at the limit, you can get up to $3 per kilo of the hydrogen incentivized. Let's just say that diesel competitive is $4 a gallon. If I'm making it at $5 with grid electricity, renewable electricity, and I get $3 off, now there's room for margin, room for distribution, and now you can compete head-on

against fossil fuels. That is an absolute game-changer. If it's anything like the renewable wave, you're going to see lots more hydrogen companies. It's going to be intense. And that's to the tune of billions a year. Yeah. And the subsidy level is huge. We're talking tens of billions a year. There's a large utility company in the U.S. next year, probably the largest renewable one. They alone have a commitment that's nearing $16 billion of direct investment, just

based off of that credit. Oh my gosh. Wow. Yeah. You're starting to get to, okay, this Knowing that and knowing about the, you know, the supply chain, how we're creating this, like, I think that let's hop and talk a little bit more detailed about the use cases. So one use case that comes up all the time is transportation, like using hydrogen literally as a fuel for, for anything for trains or planes or cars or, or what have you. Um, do you mind talking more about how you feel about hydrogen

Yeah, definitely. And I think it's the one that maybe is the most part of almost the popular imagination, if you will. It's the question we always get the most, like, so when are the hydrogen cars coming? And I actually have a slightly different personal view of this. I mean, I think, candidly, everything

underneath of a long-haul truck is largely going to be electrified. I mean, the Model 3 is an amazing vehicle, and the Model 3 and the competitors are going to own that segment. you know, just on a just on an energy efficiency basis. I mean, it's it's just more efficient to take renewable electricity, put it directly in a battery with that kind of performance package already at that scale. There was a shot maybe, you know, 20 years ago, where it where the the The

scale of investment wasn't where it was today. Maybe there was a competitive opportunity there, but I think that ship has sailed for light-duty vehicles. Above a light-duty vehicle, as you get to a long-haul truck, there's going to be a little bit of competition. The advantage of using hydrogen in that case is that it's much quicker to charge. You can solve some of the weight issue. And the

other side is that in certain applications, you can actually make it fully dual fuel. There's a lot of commercial factors that make it difficult for large fleets to just switch over to run on a pure hydrogen, say, a fuel cell truck, or even a pure battery electric truck. Not only are you switching over something that actually drives revenue for you and you can't take technology risk, the other thing is that the infrastructure support is a whole other order of magnitude in

order to support it. It's like a supercharger for a semi-truck is a serious amount more power. A few hundred of those trucks, all of a sudden you need a substation in that area, and the grid is already having capacity constraints. So that's a whole other challenge. And so I think above that truck

level, as you get to marine and as you get to planes, there's increasing opportunity to use hydrogen Interesting. That's kind of counterintuitive that a plane would be easier to supply with a fuel cell than a car would. Like just, just logically, it's like, oh, we have to carry it off the ground and it has to be fully lifted versus it Which is a perfect segue for why synthetic fuels matters. Actually. So that's the key. So that's actually perfect.

So that's, so that's what we're focused on is, is hydrogen and hydrogen derivatives because, um, The one thing that we haven't talked about is, so far, we've only been talking about just pure hydrogen use, right? So it's like, we're going to take this hydrogen, we're going to put it right in a fuel cell and turn it into electricity or something like this. The other, I think, less often talked about piece is using hydrogen as an input for

synthetic fuels. And that is the key, ultimately, to doing, I'd say, large-scale use of hydrogen for heating, large-scale use of hydrogen for aviation. Actually, funny enough, this process, the Sabaccio process, where you take CO2 and you recombine it with hydrogen, that's ultimately what's going to be required, say, for green methane for Starship. So funny enough, it's kind of like... It's enormously more hydrogen use, it's just now in the form

of some kind of a derivative. And that's the key, because one of the challenges that even if tomorrow we waved a magic wand and we said, okay, we're going to make hundreds of millions of tons of clean hydrogen, The challenges that the distribution infrastructure require to support pure hydrogen use just doesn't exist today. In Texas, and the Gulf Coast, there's a couple thousand miles of hydrogen pipelines, but that's fractional compared to,

say, the natural gas pipeline system. And so if there's a way that you can leverage the existing gas transportation networks, the existing port infrastructure, the existing airport infrastructure, you're just going to have a much faster path to scale and ultimately to decarbonization. And so that's the, I would say that's the, like the new new in hydrogen is getting the cost of hydro production down such

that you can use it as input for synthetic fuels. And that those are exactly the kind of projects that we're, we're building today in Canada and starting to develop The reason why that's like sort of confusing to me is because I know that the way that most hydrogen is made is like the opposite of the Sabatier reaction. It's literally the opposite, right?

Where it's like, you're taking methane and turning it into hydrogen, and then you're taking the hydrogen and just putting it right back into methane, and then you're like setting it up. Like, no way. Like that's, that's why clean hydrogen would like sort of make more logical sense, I guess, because at least we're not starting with Yeah, it's funny. So that reforming process, exactly. So take the methane, split it, and this way it's like, just reverse it. Now we'll

do CO2 plus hydrogen. But the trick is that this time, instead of emitting out more CO2, the trick is that you can capture CO2. And so now all of a sudden, You know, there's dozens of companies who are working to, you know, point source capture of CO2. There's a whole, there's like a whole tech tree worth of carbon capture, but nonetheless, you capture it from some other process.

You're mitigating, you know, avoiding it, avoiding it, getting into that sphere. You're then recombining it with hydrogen, and then you've got effectively a synthetic natural gas. That's just one application. There'll be, you know, e-fuels for

air, you know, e-fuel version for, for air aviation. They call it synthetic aviation fuel SAF. But nonetheless, the derivatives is, the derivatives is not just creating backwards compatibility, which will solve or largely solve, I think, distribution challenges. The other thing is it's allowing large scale hydrogen financing, which I think is another sort of under discussed piece of that is that the commercial models for building these large projects

are largely adapted from renewable energy. And it's projects that have very serious long-term demand, often because it's a synthetic fuel, that underpins the financing. And without that, you can't get to the next level of scale. So yeah, it's totally solved distribution, enables large, you know, enables a certain kind of financing so you can scale it. And

that's, yeah, that's why we're super excited about it. Solves a lot of the challenges for large-scale hydrogen use and gives I know that the financing is something that you guys do and that you personally I think care a lot about. So I definitely want to poke there. Tell me more about like this financing of how a normal hydrogen project will be financed today. Maybe like what are you guys do that's different or better Sure, yeah, so in our space, you're always trying to match

supply and demand, right? And so supply contractually gets called feedstock, demand contractually gets called offtake, but offtake runs the game. And I think the first pass of, like, should we use hydrogen? It comes down to, like, ultimately, it's what's the cost of that hydrogen? The cost of that hydrogen determines what end market you could sell it into. Basically, like, if you can make it competitive with diesel, you could sell it into transportation. If you can

make it competitive against natural gas, you could sell it in for heating. But that's, like, the iron law is that, you know, for large-scale energy use, it not being economically competitive means there is no offtake for it. I mean, unless there's a subsidy or an incentive to cover it. It's very difficult to get a massive industrial user for

whom their energy bill is some significant portion of their cost to be like, hey, we're going to increase that by 50%. They're like, no, actually, we'll just keep doing what we're doing. And it sounds so obvious, but it's often overlooked. It's sort of assumed that the hydrogen economics will work out, but it's actually a very difficult problem. How do you get enough offtake driven by the right economics?

And so coming back to synthetic fuels, now you've got, if you can make a synthetic fuel economic against whatever the fossil alternative is, let's just take natural gas for an example. Now, you could have a long-term commitment from an off-ticker to say they'll buy a hydrogen, say, under a 10 or a 20-year agreement. That allows you to have enough demand to then go back and justify the capex

or the capital required for all of the hardware. And so, this is what they call, this is typical project finance structuring, but it's been difficult to apply project financing to hydrogen projects because largely the unit economics just haven't worked. And so now, finally, because of those three pillars and the market development and the demand side coming together, now you can actually pull that into workable large-scale projects. So to give you an example, we're

working on a project where we're going to be creating synthetic natural gas. And because we've got a group that's willing to buy, again, long-term quantity of hydrogen out, we can then justify the CapEx required. And so a project like that's about 130 million Canadian, which is roughly 100 million US of CapEx. And so it's difficult to finance those with equity raises. You want to get a bank involved in that. And that little

piece has been where so many... That's been this, I'd say, gap in the market from like, I call it equity finance technology plays and then large scale actual infrastructure development. And that little key is, does the offtake work? Can we apply project financing? And I think it's like a hidden

but super valuable thing is that the business model innovation has mattered almost as much as some of What does an off-take agreement look like concretely? Does it say, at this price, this amount, we will buy from Yeah, exactly. It's literally like, how much are you going to buy? It's volume, it's time of term, how long is this contract going to be? What's the pricing mechanism? And then a whole bunch of conditions around making sure that those, how are

you going to split capital? What's the time, when's the product going to go online? What representations are you going to make about the quality of the company? But the main thing, like the economic drivers, like how much for how long at what price? And those are always the key factor in the And that's part of, they will agree, a buyer of liquid natural gas or something will agree to pay some amount of capex to help build the plant or whatever that's producing it?

Not always. Typically, it's that they're providing their off-take agreement. I'll just make it super concrete. If someone says, I'm going to buy, I don't know, 100 tons a day of hydrogen at X price, let's just say that contract is worth maybe a billion over 10 years. So, you know that you've got contractually locked in a billion of revenue, and then you can go back to either your equity groups or the banks and say, look, there's going to be a billion for revenue. We've

got to invest, say, a hundred million. And they're going to say, okay, well, the banks will typically do up to 80% of that cost. So, the bank will lend you 80 million, and then you've got to go find 20 million of equity. For that equity component, there may be... your customer may want to invest in the project, but it's not automatic. That's a separate, you know, do you also want to invest? It's a different, different piece of it. But that's, it's, it's, it's, you know, like, the highest in some

ways, like the highest multiple companies are always the ones with the strongest recurring revenue. But that's what makes the energy deals so crazy in a way is because like, you get huge long term contracts that are like, it's almost like the step It's like a step improvement because it takes a long time to put these contracts together. It can be quarters to years, but all of a sudden, the value jump is insane just on one. A hundred million dollars, yeah. Yeah, exactly. Just off

of one of these projects. So they're mega and cool, but I imagine that just to make it personal, I imagine that makes it sort of hard for you as a business because each of your projects is so mega. It's like the sales cycles must be long and it must be hard to kind of like, you know, I don't know, to ride that super like Well, that's actually what's driven us to focus on vertically integrating all of these pieces. So the thing about Seralta is that it's not just, so we do, so we'll source

hydrogen or produce hydrogen. We will do all of the contracting for it. We will put together the financing. It's end to end. The thing that we've also added on is we have a strategic relationship with a large equipment manufacturer. And so we don't just design it and then hand off the design to what, in our industry, they call them an EPC, an Engineering Procurement and Construction Group, so basically you're a builder. Oftentimes, people will come with their Hydra project and they're like, here

it is, go build it. We do the engineering and the development in-house. And so when we start building a project, There's going to be a gasket, and I'll share a photo of this with you. We just go downstairs, and we look at the gasket. We're like, how's the development going? And the reason I start there is because in order to offset some of the challenges of pulling together these projects, we've brought as much as we possibly can in-house,

so it is end-to-end. Because you've got to get You've got to get the feedstock side, you've got to get the optics side, you've got to get all the engineering done, you've got to get the financing in place, you've got to get the regulatory approvals. And that's a handful of agreements that all have to line up before what they call FID final

investment. That's the final trigger. And so our mission with this integration is basically to speed up the time of project development by standardizing the process, by controlling the manufacturing

in-house. Um, and making it so that, you know, we could bring these projects online significantly faster as opposed to, you know, So, yeah, I think, I think you mentioned to me in a, in our previous conversation, something about the percent of projects that actually get to FID or that are at FID after, cause it, you were telling, talking about the importance of financing and that it's only like, I think you said like 4% make

Yeah, and I'll make a note to share the actual sources. So there's an industry association called the Hydrogen Council. And then there's another, I think it's I have to interrupt and say that sounds so cool. The Hydrogen Council sounds like badass. It's like, what are the other elements on the periodic table that have their own council? It's the council, I There is actually a hydrogen council. It's

an alliance of all of these megacorps, and they're all trying to figure out how to push hydrogen. In some sense, we're talking about measurably changing single digits to dozens of digits of final end use. Depending on the estimate, it might be going from 100 million tons to a billion tons of hydrogen in the coming decade. There's this huge, yeah, there is, they do it, they set all this global policy and they put

together these reports. Out of something like, the amount of announced hydrogen projects is approaching 40 million tons of clean hydrogen. So in theory, the market's gonna grow by 40%, which is no joke. I mean, that should be huge. But only 4% of that is actually at the finish line and being built today. So really, the gap is, 38 million tons that may be coming online and 2 million tons that's actually actively in development. That's crazy. What's the difference? What prevents more? Why don't

I mean, there's a lot of ways that the projects could die. Again, I'd say the largest driver comes down to, at the end of the day, as I always tell my team, it's like offtake rules everything. And at the end of the day, if the economics of that, the unit economics of that hydrogen supply just don't work, the deal doesn't work. And the challenge for some of these is that at the mega scale, if you're talking like, I'll

give you an example. There are some projects to try and take, say, the coast of Australia and invest on the order of $40 billion and make an enormous amount of hydrogen for both domestic use and export. And all of a sudden at that scale, the regulatory challenges can become super immense, right? And they take a long time. So there's a lot of reasons why, but I'd say it's primarily driven by cost. And then second is you'll run

right into certain levels of regulatory challenge depending on the jurisdiction. And that's where your magic comes in. That's where we, yeah, that's what we're focused on. We're focused on, you know, I'd say markets where we can transact today with quality off takers. And, you know, we will supply either pure hydrogen or we will supply a hydrogen derivative like a synthetic natural gas or what's sometimes referred to as E-methane or electric methane to

Are there other use cases that you want to talk about? We always sort of got to transportation, I guess,

I would say broadly the category that it feels we've covered and it becomes important because it then touches sort of everything else because if we want to sort of list them out, there is transportation, both, you know, you know, from vehicles, trucks, marine, rail, air. Hydrogen will do, again, compete against everything above a truck. But then I'd say the other sort of category is hydrogen as an input for

chemical production. So this is where we're talking about ammonia, for instance, sometimes methanol. Those are other categories. And then the rest is primarily for heating. So just directly displacing, you know, the use of natural gas for heating. And that's Depending on the economics of where your natural gas supplies, that either makes sense or doesn't. But

that's, say, another huge, huge application. And for us, we're focused on displacing natural gas with hydrogen or a hydrogen derivative and producing synthetic fuels for whatever the whatever the end application required for that is. That could be marine, it could be rail, it could be aviation. Sorry, not rail. It could be marine, it could be aviation. What are some of the most common misconceptions you get that people have about hydrogen that are just annoying

Safety is absolutely paramount. Hydrogen is energy dense. It's also super combustive. You want that combustive potential. And so safety is absolutely important. And depending on the application, there's different ways to handle hydrogen safely. And the industry has been doing it for more than a hundred years. So having just said that, the first question that people will often ask is, what about the Hindenburg? And what

about that explosion? And it's stuck in the public imagination, and it's one of the only touch points that many people have for Hydrogen. And so I would say that one comes up a lot. You know, I think it's not well known that there's a guy named Addison Bain, who's a scientist who went to basically exonerate hydrogen from the Hindenburg explosion. Because what happens is that there was these... What happens is that the hydrogen actually flares very quickly. Hydrogen, you know, it

burns extremely quickly. And so it basically like flares off. What it lit up, though, was the metal-based paints and the outer hull and the bladders, which were then ignited. You know, Hydrogen's like, oh my gosh, Hydrogen's, you know, da-da-da-da-da-da-da-da-da-da-da-da-da-da-da-da-da-da-da-da-da-da-da-da-da-da-da-da-da-da-da-da-da-da-da-da-da-da-da-da-da-da-da-da-da-da-da-da-da-da-da-da-da-da-da-da-da-da-da-da-da-da-da. Yeah, got a bad rap. Exactly. And so I think the way he said

It was the spark. I mean, it wasn't that somewhat imaginative image that people have. And I think the way he said it was, maybe we shouldn't paint our airships in rocket fuel. That was the way that Bain put it. And so, of course, now today, you don't use metal-based paints, of course, but that's time. I'd say that's sort of the number one thing. The other one, and this is funny, so I had a... One other thing I'm super passionate about is hydrogen directly for use in combustion. Low

energy efficiency, but has other benefits. For an experiment, for a prototype, we took a Chrysler 300 and we converted it so it could run on pure hydrogen and pure gasoline, and you could swap between the two. And one of the things that would happen so often is that people actually think hydrogen is water. And so they'll say things like, oh, well, yeah, we're just going to power everything on water, right? I'm like, well, just think about that for just a second. But I'd

say that's actually a very strong number two. People are like, well, wow, we'll just put water in the car. There is a step in between there. But that one actually comes up quite a bit. Hindenburg, hydrogen is water. And then I'd say the third one is just all flavor of you know thermodynamic braking Solutions like people just like oh, yeah, well there's I think there's this idea that You know

if you can get like small hydrogen production. You know you'll just get a little electrolyzer You know my car or like or something like this, then I can just have you know low-cost energy I'll put the solar cells of the car. I put an electrolyzer There's all sorts of schemes like this, like small scale electrolysis and everything, but the reality is that none of

that actually scales and is economic. But it comes up a lot, like the number of times where people talk about sort of their like, I will break free from the grid and be energy independent myself. It's like, well, it's a little harder than that Did you call it thermodynamic braking? Is that what you It's because you're not going to get more energy out than you put in, but a lot of times it's like, well, yeah, if I just have my water, I still have unlimited

energy, right? I'm like, we're all bound by the laws of thermodynamics here. It's like the perpetual motion machine version of hydrogen sometimes Totally, totally. There's hydrogen all around me right now. I'm 70% water. There's lots of hydrogen in me. Are there any projects that you would feel comfortable talking about? Like, you know, just as an example, like an example project that you're doing. I think you have one published on your website, right?

Yes, yeah, happy to chat about that one. That's public. Yeah, that's um, so this is an example of pure hydrogen use. So in this project, the hydrogen is produced via electrolysis. And the hydrogen is then being distributed through a dedicated hydrogen pipeline so that it can be used to reduce natural gas consumption in a pulp mill. And so that's a commercial, it's our first major commercial project, and it's a demonstration that there's actually a new model

for making Hydrogen Simple. We actually make it work for a large industrial customer, and we take care of everything from the hydro production all the way to the distribution to that site. And so we're super excited about that. The

system will be online early next year, and I'm hoping to do one of those drone fly-throughs through the plant. I'll share some of these photos. It's a large system. It's going to produce over 10 tons per day of hydrogen, so you can imagine it's two stories of electrolyzers in a huge bay. I'll share this photo with you. It's Yeah, you got to do it. Have you seen the video of the first person view drone that flies through the Tesla Germany factory?

Yeah, it's like right through some of those frames. Exactly. Yeah, exactly. Yeah, I mean, yeah, it's, it's, you know, it's some of these projects, you know, they're some of the largest, you know, electricity uses in their region, right? And they're huge scale systems. And like, the visuals are amazing. Like the, the, at this pub, well, there's a, it uses natural gas for heating in this, this giant boiler. But I mean, like, you're seeing like this huge combustion going on.

And it's, it's visually pretty awesome. So yeah, definitely. I'll definitely share some of the footage, the the material we have now, but that's the goal is like, let's get, let's do the drone thing as soon as we can. Is there any piece of technology that in particular, like that you would snap your fingers and just have exist to help you accelerate the advent of using hydrogen, like clean hydrogen? Would it just be additional cheap solar? Would it be some sort

of, I don't know, better electrolyzer or something? If you could choose any one technology accelerated five years right now, which There are some ideas at the edge for how to better store hydrogen. There's all sorts of different... I don't want to get into the specifics of it, but if there was a way to address the volumetric issue,

I think that would really be a true game changer. So today we're sort of bound by either using existing gas and the current compression technology If we could address the volumetric issue, that would make a huge difference. I'd say the other side is if you could waive one thing, and this is actually maybe more closer

to actually being a want that can be waived, it would be to massively de-bottleneck grid interconnection. Because there's actually an enormous amount of renewable energy that's been built, or renewable energy capacity that's been built. But the challenge is actually getting the interconnection agreements and getting it onto the grid. And so there's this astounding graph. It's something like, you know, we, grid capacity has only gone up, you know, a small amount. And yet

there's all this renewable energy capacity just waiting to come online. And that would be That's actually a real thing that can be done. There's no, the project's already built. We just got to get them connected and that would put them way more energy online for large scale hydro production. So that's, yeah, one's maybe more harder to do, but there are some ideas on how to do it, pull that technology, you know, into

First of all, this is awesome. We've covered so much ground. This is this perfect. I'm curious, just sort of like, like wrapping it up, like, what's different this time around? You know, it seems like, you know, people have been excited about hydrogen before, and it's, it's always had this kind of chemical potential. But it seems like now is sort of unique. And I'm curious, like, Yeah, and it sounds almost like a lame answer

in the sense that many things have come together at the right time, but they have. And so, you know, the hydro production technology has gotten to the point where it's mature and can be acquired at scale and costs are falling. Massive amounts of renewable capacity is coming online and costs are falling and the learning rate is continuing. Carbon capture technology is mature and real and costs are declining. There's massive regulatory support for it. And in some ways, those

are all supply side answers. But then on the demand side is the shift for net zero and having, I'd say, the largest energy users in the world. now having done as much as they can on renewable energy acquisition, now working to decarbonize sort of the rest of their value chains. And that all has come together where you now have massive amounts of hydrogen demand

being combined at the same time where there's now true economic supply. And that's where we're sitting right at the middle and trying to, you know, break together as much of that and build, you know, the leading hydrogen platform. That's super exciting. Awesome. Thanks, man. I really appreciate you coming on the show. This is