Hydrogen’s Role in the Energy Transition: Matt Fairley in Conversation
Hydrogen’s Role in the Energy Transition: Matt Fairley in Conversation
directrice générale de l’équipe Investissement responsable de BMO Gestion mondiale d’actifs en Amérique du Nord
Nalini Feuilloley a été chef de la section canadienne des Principes pour l’investissement responsable des Nations Unies. À ce titre, elle…
Nalini Feuilloley a été chef de la section canadienne des Principes pour l’investissement responsable des Nations Unies. À ce titre, elle…
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Hydrogen holds lots of promise in decarbonizing heavy industry and is also one of the leading options for storing renewable energy. In this episode of Sustainability Leaders, BMO’s Nalini Feuilloley, and Matthew Fairlie, Vice Chairman and Director of Next Hydrogen, discuss how hydrogen can help in the transition to a low carbon economy.
In this episode:
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How hydrogen is produced
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The different kinds of hydrogen: blue, green and black
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How hydrogen can reduce greenhouse gases by replacing fuels currently in use
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Industries that stand to benefit the most from hydrogen
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The advantages of hydrogen fuel cells (that convert hydrogen to electricity) compared to batteries
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The role hydrogen will play in the clean energy transition
Sustainability Leaders podcast is live on all major channels including Apple, Google and Spotify
Matt Fairlie:
We really have to deal with the gorilla in the room, which is climate change and fossil fuels. And we have to find a way to transition from fossil fuels to, I think, what will be hydrogen and electricity. But we could do more on the policy side to accelerate this. Recognizing what the end state is, we could do some things to make the on ramp a little bit faster.
Michael Torrance:
Welcome to Sustainability Leaders. I'm Michael Torrance, chief sustainability officer with BMO Financial Group. On this show, we will talk with leading sustainability practitioners from the corporate, investor, academic, and NGO communities to explore how this rapidly evolving field of sustainability is impacting global investment, business practices, and our world.
Nalini Feuilloley:
The views expressed here are those of the participants and not those of Bank of Montreal, its affiliates, or subsidiaries.
Nalini Feuilloley:
Welcome to Sustainability Leaders. My name is Nalini Feuilloley, and I am the head of responsible investments for BMO Global Asset Management. Today, I am joined by Matt Fairlie, vice chair at Next Hydrogen Corp., a designer and manufacturer of electrolyzers that use water and electricity to generate clean hydrogen for use as an energy source. Today, we're going to talk about hydrogen and its role in the transition to a net zero world. Matt, thank you for joining us today to discuss such an interesting topic. I know hydrogen's been around for a while, but it's really taken off in the past couple of years in terms of a topic related to the transition and climate change. So, perhaps, we could start with you telling us a little bit about your role at Next Hydrogen and what you do there.
Matt Fairlie:
Thank you, Nalini. And thank you for the opportunity to talk to your listeners about the relevance of hydrogen and the role it'll play in this decade and the decades to come. Just an introduction about Next Hydrogen. We manufacture electrolyzers, and for the uninitiated, water electrolyzer is a machine which takes electricity and water, which is H2O and separates the hydrogen from the oxygen to produce streams of pure hydrogen, pure oxygen. Personally, I'm a co-founder, former CEO, and now vice chairman of the company. I have 40 years’ experience in hydrogen materials, renewable energy technology, and I provide help across the company in terms of technology, product, and business development in those matters.
Nalini Feuilloley:
Perfect. That's great. Well, we're really happy to have you here with us today. So now we'd like to get into the nitty-gritty. Most of us have heard about hydrogen as a potential source for clean energy, but maybe you can help us break it down for our listeners. So what's all the fuss about hydrogen and its resurgence as part of the conversation around climate change and a transition to a net-zero world? How long has it really been part of that conversation around clean energy, and where does it really sit on the spectrum of other alternatives to fossil fuels? Maybe I'll stop there, because I have a lot of questions.
Matt Fairlie:
Okay. Well, hydrogen has been discussed for decades as a future fuel, and longer when you consider that the first internal combustion engines ran on mixtures of hydrogen and carbon monoxide called coal gas. And for fans of science fiction, Jules Verne's shipwreck engineer and mysterious island waxed on about he envisaged a hydrogen from water that would be the coal of the future, providing inexhaustible supply of heat and light. Well, this has sparked the imagination for over 100 and almost 150 years, but more recently, in more recent times, and I'm talking about in the span of my career, 40 years ago, I was a graduate student at the University of Toronto physics, and I had a company that built a hydrogen car, which we ran around Downtown Toronto. This was before compressed gas storage, so we used a metal hydrate gas storage system. The interest in hydrogen fuel at that time was driven by fears of oil scarcity brought on by OPEC market ascendancy.
Matt Fairlie:
So it has long roots. A lot of people have thought about it and solutions have been developed, such as the hydrogen fuel cell, which can convert hydrogen to electricity efficiently. But today, it's coming into relevance for two reasons: climate change, and secondly, the cost of renewable energy, in particular, solar. And we'll talk about that a little bit later, but now talk about the services that hydrogen can provide. Hydrogen can be a replacement for the fuels we use today. It can be stored in tanks and dispensed when it's needed. It can be shipped from regions to regions, from regions, for example, which have high renewable energy resources to regions that are poor in renewable energy resources. And such systems are being developed between Australia and Japan. Like oil and natural gas, it can be used in combustion, and it can be stored on a large scale underground and can be moved in pipelines. In terms of energy services, it can be like natural gas for heating, but it also can be used to generate electric power in a device called a fuel cell. So it can be used like a battery in an electric vehicle, where today it is being pursued for heavy duty transportation, where the cost weight of batteries is not favorable. Looking towards the future and the massive task of decarbonization ahead of us, I think hydrogen is inevitable.
Nalini Feuilloley:
That's such a great way of breaking it down, understanding its uses, understanding how it can service some of the concerns around climate change, more specifically, how to scale renewables and move them from region to region, so thank you for that. So one other thing that I've heard of as of late, and for you, it's probably been around for a while now, is the range of colors associated with hydrogen. It's almost known as the rainbow of hydrogen. We've all heard blue hydrogen, green hydrogen. I think I even heard of gold hydrogen at one point in time. So we don't need to get into that. But if you can help me understand the distinction... And our listeners as well... and the pros and cons of each.
Matt Fairlie:
The rainbow reflects the process used to make the hydrogen and also exuberant branding on the part of various proponents. These are self-claimed colors, so there's no physics to how this spectrum evolved. Hydrogen by itself is too reactive to be found is a pure substance, except in space. And so it has to be extracted from other compounds, but there are lots of options. Hydrogen can be extracted from organic materials, and here I'm talking about crops, organic waste, green-separated organics, for example, and also fossil fuels, which are organic molecules as well and also, inorganic compounds such as water. And there are many pathways to make hydrogen, such as thermal processing, which you'd find in a refinery, where they need hydrogen to up oil to produce lighter fuels. And it can also be produced in biological processes, such as fermentation, and electrochemically like the process Next Hydrogen has developed around water electrolysis. The colors are then derived from the process used to make it. At the end of the day though, in today's conversation, what's most important to consider is the carbon intensity, how much carbon dioxide is released by the production of hydrogen. Today, the most relevant term of processes, in terms of scale and decarbonization, are green hydrogen, which is predominantly electrolysis of water, and blue hydrogen from thermal processing of natural gas, with capture and sequestration of the CO2 created by the process.
Nalini Feuilloley:
That's really, really helpful. Blue and green are definitely the ones I've heard most about, so thank you for that. In terms of what kind of hydrogen will be the most important for the transition, is there one that we should be keeping our eye on?
Matt Fairlie:
I think really they're the two, and they will play successive roles in terms of how they will dominate the hydrogen world. Blue hydrogen, which is primarily produced from natural gas, will have a significant impact in the near term because it is the pathway to significant greenhouse gas reductions in the next 10 years. For the Canadian fossil fuel industry, this could amount to 30-million tons reduction in CO2, very valuable reduction in terms of achieving our national goals. The creation of the blue hydrogen infrastructure could lead to even greater expansion into the energy system as low-cost decarbonized, hydrogen, could reduce emissions in transportation and industrial sectors. Some are even thinking in Western Canada... Some people are thinking the production of blue hydrogen could become a major Canadian energy export. Although blue hydrogen can take us a long way, it won't get us to net zero, at least not with the current technology for gas extraction in steam methane reforming.
Matt Fairlie:
And here steps in green hydrogen. And actually, when you look at the world map, some countries are already on green hydrogen because they don't have fossil fuels industry that we have, and they are moving more immediately towards renewable energy from that green hydrogen production. And so the green hydrogen will evolve along the track of renewable energy. As renewable energy becomes lower cost and more available, as electricity grids increase its penetration... And experts are thinking up to 80%. For example, in Ontario, the penetration of what we would call renewables, solar and wind, is probably around 10%. And you can see the impact of that in terms of energy surpluses and strange things in the electricity markets. But think about when it gets to 80%. There will be a need for this renewable energy to flow into our economy and decarbonize.
Matt Fairlie:
There's also standalone projects. These are national projects, like in Australia, where they're putting massive renewable energy in to produce green hydrogen to ship to Japan. Japan, although it's a very, very, very advanced economy, unfortunately, Japan doesn't have the land or the nearby places where it can place renewable energy. So it has to import energy as it always has. And it will be importing renewable energy in the form of hydrogen or one of its associated carriers. So, looking at this transition, it depends on where you are. Some people are jumping onto green hydrogen and even building dedicated systems for it. And others who have existing hydrocarbon resources are looking at blue hydrogen as a transitionary step. And, from my perspective, as a Canadian, I'd like to see us achieve our goals, so I'm rooting for both. And I think we need blue hydrogen in the west, and we can have green hydrogen in other provinces where there is an abundance of renewable energy and where the agenda is moving towards large-scale renewable energy in electricity grids.
Nalini Feuilloley:
Right. So it sounds like we need both. We need both to get to net zero.
Matt Fairlie:
We need both. Yeah, I mean, Canada can do both, and it helps us in the near term and it positions us in the long term.
Nalini Feuilloley:
That's great. So when we think about hydrogen as a clean energy solution, has it been completely proven as a viable alternative? And what I'm getting at is really the cost around producing hydrogen versus other means of clean energy creation and storage.
Matt Fairlie:
Hydrogen energy systems, as we're talking about them now, which are new energy systems with an emphasis on using low-carbon hydrogen, are, in fact, competitive with batteries in a number of applications, most notably in material-handling systems in forklifts in warehouses. And there's a number of businesses that are chasing that, including ourselves, but in the US, Plug Power, for example. The advantages of hydrogen fuel cells, when you compare them to batteries, can be expressed in terms of reduced weight, time to refuel, and in some cases, the environmental impacts in terms of handling battery materials and how to handle spent batteries, basically. Now, these advantages will be weighed against the cost of hydrogen. So hydrogen is more expensive in terms of fueling or recharging an electric vehicle over a distance, but as the cost of hydrogen comes down, and this is something that we'll see with the increase in penetration of renewable energy I was talking about earlier, these other advantages begin to form the CBA, the cost benefit analysis, the same way they did in material-handling systems.
Matt Fairlie:
In material-handling systems, it comes down to the cost of hydrogen versus the productivity improvement by refueling your machines in one minute, as opposed to having to charge them for 15 minutes, half an hour, or having to swap out batteries. So the advantages of hydrogen are there over batteries for a zero emission that provide energy for an electric drive, which will be the platform for zero-emission transportation. And it will be, as the cost of hydrogen comes down, the advantages of hydrogen over batteries will begin to express themselves and hydrogen will start to move into more markets that are now currently covered by batteries. In terms of other fuels, I can't think of any that can operate on a global scale at the scale that's required to replace fossil fuels. There are niche fuels like renewable, natural gas that could be used in applications such as transportation, or they may be too valuable to do that. They may be used in other applications as we see how these things evolve.
Nalini Feuilloley:
Okay, well, speaking of the point you just made about applications and the uses in transportation, what are the biggest emitting activities or sectors that hydrogen can truly support? And again, maybe not referring to what role it's playing today, but what we expect to see in the next 5 to 10 years. We often hear about hydrogen as this transition fuel. And so I think it's really interesting to understand the sectors where carbon's probably a little bit more difficult from a hard to bake perspective. So I'd love to hear a little bit more about the applications of it.
Matt Fairlie:
We'll start with the low-hanging fruit first. And I think what we're looking at, a fact that people are maybe not aware of is that hydrogen is a industrial chemical used around the world and in all sorts of industries. So the world currently uses about 120 million tons of hydrogen each year. About 80 million tons of it is produced from fossil fuels. And that hydrogen production from fossil fuels creates about 800 million tons of CO2. That's larger than the emission footprint of Canada larger, than the aviation industry. So if we're looking for low-hanging fruit, this is where you go to get initial wins in climate change. And we talked about that earlier in terms of blue hydrogen and what that could do in terms of decarbonizing the fossil fuel industry.
Matt Fairlie:
Going beyond that, there are industries, such as the ammonia industry, where you can get a one to one replacement. They just need hydrogen. If its green hydrogen, blue hydrogen, black hydrogen, it makes no difference to the process. So those processes too can be decarbonized. Looking a little more boldly, we use carbon today as a reductant. It's used to process materials like iron in the steel-making process. And so there is the possibility that processes are being developed and tested, where we can replace coal and coal's origin within the iron-making process. We can replace coal, hydrogen, and take that chemical reaction out of the process. And so we can make steel with hydrogen and reduce emissions significantly. As we build out these systems... And you look at steel making, it's a huge enterprise, it has huge missions, and in order to replace coal... And coal is a major world commodity... you're going to need a lot of hydrogen. But as this decarbonized infrastructure gets established, it will begin to compete with other low-carbon pathways and the cost of hydrogen will come down, and the role for hydrogen will expand into transportation in a very general way and energy services, such as heat, basically a replacement for natural gas.
Nalini Feuilloley:
Wow. So now maybe looking at the flip side of hydrogen, what is the greatest challenge for the hydrogen industry?
Matt Fairlie:
Well, we talked about cost, and I'll come back to that, but hydrogen, along with renewable energy and the number of tools we already have, stand ready to make a significant contribution to reducing greenhouse gases. Along with electrification, battery electric vehicles' intensification, we can all use these tools to tackle climate change. I would say the issue is that market forces aren't strong enough. Fossil fuels, incumbents dominate the infrastructure, and it will take carbon costs at higher levels. And the federal government has given some guidance about this, and it's the right way to think about it, which is not the cost of what will change behavior, although that's a very important thing in terms of people reducing their use of certain things and their use of fossil fuels, but really look at the cost of mitigation.
Matt Fairlie:
So how much does it cost... If I put CO2 into the atmosphere, how much does it cost for me to take it out somewhere else and create that zero-sum equation? And when you look at large=scale reductions of CO2, we go to making blue hydrogen. And so the cost of blue hydrogen, of course, is the natural gas, but the extra cost is the carbon-capturing sequestration. And capturing CO2 off a hydrogen manufacturing plant in Alberta is probably the most cost-effective way of capturing CO2. But even if we do that, it's today... And I would challenge whether those costs can be improved... it's about $150 a ton. So we look at where we are with carbon taxes today, we're working on the behavior element and deterring people from using fossil fuels. But in order to really step up, we have to start thinking about, "Well, if we release CO2 in this part of the environment, how do we take it out somewhere else?"
Matt Fairlie:
So the other thing that will help this, of course, is cost. And the cost of hydrogen is going to come down, not so much in the blue hydrogen area, but it's fairly inexpensive already there. The issue is scale because you're talking about an industry which is handling pipelines of hydrogen. And so the scale issue needs to be addressed. But if you look at green hydrogen, it really comes back to what we're talking about in renewable energy, and renewable energy is cresting 3 cents a kilowatt hour, and there seems to be still room for it to decrease. So if you look at Bloomberg projections, which Bloomberg deals with some of these forecasts, hydrogen could be made far cheaper than even fossil fuels in what could be a relatively short period of time as we decarbonize the grid and pile on this massive amount of renewable energy.
Nalini Feuilloley:
All right, so it seems like cost is the biggest challenge right now, but you see a way around that through scale.
Matt Fairlie:
Yeah, it's really two things. One, we really have to deal with the gorilla in the room, which is climate change and fossil fuels. And we have to find a way to transition from fossil fuels to, I think, what will be hydrogen and electricity, electricity first. Hydrogen will be following right behind mopping up the electricity market in terms of all the available electricity. But we could do more on the policy side to accelerate this. Recognizing what the end state is, we could do some things to make the on ramp a little bit faster and then with the assurance, as I said earlier, that hydrogen is inevitable with what will happen with electricity grids.
Nalini Feuilloley:
If we take a step back, where do you see clean energy production, in general, by 2050? What will the energy mix look like, ideally at that time, specifically thinking about hydrogen versus solar, wind, natural gas, et cetera?
Matt Fairlie:
Yeah. Hydrogen will be a compliment to solar and they'll work together, but I mean, if we're truly going to meet our net-zero goals, we're going to see replacement of fossil fuels in the energy services that we have today. That's in transportation, in heating, in all the plastics products that we use. There'll be large-scale replacement, maybe complete replacement of fossil fuels if we're religiously net zero. Processes will be electrified to the largest extent possible and those processes that can operate online and don't require energy storage or conversion. Hydrogen applications in industry will replace coal in many places, reductants in steel. Fuel cells, which are these devices that take hydrogen and air and create electricity, are going to be widespread in transportation and stationary power will also follow this. There are few ways when you look at renewable energy and it's availability because it's on top of the day to night, which we all can immediately see that solar panels probably are not generating power at night. We also have seasonal variations, and those seasonal variations are in the supply of renewable energy and also in the demand for it.
Matt Fairlie:
So when you look at these large-scale changes to the grid, we're going to need massive energy storage systems, in fact, similar to what we have for natural gas today. We run natural gas systems continuously, and we rely on the storage that we can create hubs by storing it in the ground, in the pipelines, and of course at where we extract it. So this energy system in the future is going to be... From the perspective of people concerned about climate change, it's going to be a marvel to see. It will be clean. It will be highly distributed, likely. It will be a lot more democratic in terms of where the resources are in terms of energy extraction. And so it really not only deals with the energy question and climate change, but also I think moves forward sustainability goals in a more general way.
Nalini Feuilloley:
That's really great. I'd just like to say, thank you, Matt, for spending some time with us today on Sustainability Leaders. This has been a really interesting conversation around the use of hydrogen and its role as we transition to a net-zero future. Thanks again.
Matt Fairlie:
Thank you, Nalini, for the opportunity to talk to your audience.
Speaker 3:
Thanks for listening to Sustainability Leaders. This podcast is presented by BMO Financial Group. To access all the resources we discussed in today's episode, and to see our other podcasts, visit us at bmo.com/sustainabilityleaders. You can listen and subscribe free to our show on Apple Podcasts or your favorite podcast provider, and we'll greatly appreciate a rating and review and any feedback that you might have. Our show and resources are produced with support from BMO's marketing team and Puddle Creative. Until next time, I'm Michael Torrance. Have a great week.
Nalini Feuilloley:
The views expressed here are those of the participants and not those of Bank of Montreal, its affiliates, or subsidiaries. This is not intended to serve as a complete analysis of every material fact regarding any company, industry, strategy, or security. This presentation may contain forward-looking statements. Investors are cautioned not the place undue reliance on such statements as actual results could vary. This presentation is for general information purposes only and does not constitute investment, legal, or tax advice and is not intended as an endorsement of any specific investment product or service. Individual investors should consult with an investment, tax, and/or legal professional about their personal situation. Past performance is not indicative of future results.
