Surveying the Hydrogen Landscape with Alan Alexander from Vinson & Elkins

Sponsored by Deloitte

There’s been a lot of buzz about the role hydrogen stands to play in the energy transition. Alan Alexander, a partner at Vinson & Elkins, joins the show to help separate the signal from the noise. V&E just released a paper ("Unlocking the Opportunity of Low-Carbon Hydrogen: Investment, Incentives, and Collaboration")  that outlines the current hydrogen landscape and what lies ahead as factors like the Inflation Reduction Act continue to drive growth in the sector. Alan walks us through the themes of the paper and shares his thoughts on how the hydrogen sector is maturing. The paper is an excellent primer on hydrogen and also includes an insightful summary of key points that developers and financiers need to remember when planning and negotiating hydrogen projects.

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Transcript

(Note: This transcript was created using artificial intelligence. It has not been edited verbatim.)


Sean McMahon 0:00
What’s up everyone and welcome to the Renewable Energy SmartPod. I’m your host Sean McMahon and there’s no denying the topic of today’s episode is a very hot topic.

There’s been a lot of buzz about the role hydrogen stands to play in the energy transition. To help separate the signal from the noise, the law firm of Vinson & Elkins just released a paper that outlines the current low-carbon hydrogen landscape and what lies ahead as factors like the inflation reduction act continue to drive growth in the sector. My guest today is Alan Alexander, a partner at V&E, and he is going to walk us through the themes of the paper and share his thoughts on how the hydrogen sector is maturing. I gotta tell ya… the paper is an excellent primer on hydrogen … but what I also like about it is that it includes an insightful summary of key points that developers and financiers need to remember when planning and negotiating hydrogen projects.

So not only is that paper from Vinson and Elkins hot off the presses, but the Department of energy also just released the first ever national clean hydrogen strategy and roadmap for the US. The roadmap lays out a  comprehensive framework for accelerating the production, processing, delivery, storage, and use of clean hydrogen. Much of what the DoE roadmap outlines dovetails perfectly with the Vinson and Elkins paper. 

Oh… and just in case you listen to my conversation with Alanand wonder why we don’t go into detail about the roadmap…well… that’s because the roadmap was released juuuust as we were finishing the recording of our interview. So like I said… it’s a timely topic! 

So whether it’s coming from DoE or V&E … there’s a lot of hydrogen news out there right now. Hopefully, this episode will provide you with a greater understanding of what it all means. 

Hello, everyone, and thank you for joining me today. My guest is Alan Alexander, a partner at Vinson and Elkins, Alan, how you doing today?

Alan Alexander  02:37

Sean? I'm doing great. Thank you very much for having me. I'm happy to be here.

Sean McMahon  02:41

Well, I'm excited to have you on here. We're here to talk about a paper that Vinson and Elkins just released. It's called unlocking the opportunity of low carbon hydrogen investment incentives and collaboration. So let's give our readers just a quick background on this. So what's the quick synopsis on the various ways that hydrogen is produced?

Alan Alexander  02:58

There are a number of ways hydrogen is produced. And there's this interesting little color scheme that you know, as proliferated and widely discussed and largely to help people talk about the ways hydrogen is produced. I find the color scheme in a number of respects to be confusing and misleading, but I don't think it's going to get dislodged anytime soon. I think some of the ones that are most talked about would be gray hydrogen, hydrogen produced the traditional way from Steam methane reformers. People talk about green hydrogen, which traditionally kind of means hydrogen made and electrolyzers that are powered by renewable sources of energy when solar what have you a lot of people like to talk about pink hydrogen, which is also hydrogen producing electrolyzers with power sources, nuclear fission technology, nuclear fission plants, there are companies out there trying to develop improved technology that produces hydrogen, we're using what's called methane pyrolysis, which essentially superheated natural gas and separates the net natural gas into hydrogen and carbon and the carbon is then emitted in a solid form as opposed to a gas and there's blue hydrogen, a lot of people talk about that which is essentially hydrogen produced the same way great hydrogen is produced but with carbon capture and sequestration technology added on and there's a lot of other colors I've heard yellow, gold, red, purple, I don't even know what a lot of them are. But I would say the ones that get talked about quite a bit in the current discussions about hydrogen are of course gray, blue, green and a little bit lesser extent turquoise and pink. Okay, yeah,

Sean McMahon  04:33

I mean, speaking of pink, so pink is produced using nuclear right that's correct. I saw a deal that was kind of stop and go phase from constellation is kind of in the in the headlines this week and whether they're gonna make that happen. But getting back to the port so you know, what's the current mix of production percentages, you know, of all the hydrogen is created by all these various processes. What are some of the most popular I guess, are most commonly used?

Alan Alexander  04:55

So even today, most of the hydrogen in us in the world is produced via the traditional routes, and I believe that steam methane reformation, so it would be great hydrogen is by far and away the most prevalent us right now. And you got to bear in mind, until about a year ago, when the inflation Reduction Act was passed, a lot of these forms of producing hydrogen via with carbon capture technology, or V electrolysis, you know, were very interesting, but they weren't cost competitive. And, you know, we occasionally get a developer, you know, who'd come in and want to explore the possibilities of doing a low carbon hydrogen project, but it just wasn't, it couldn't find an off taker or someone to purchase it or something to do with it wasn't cost competitive to develop and produce. The inflation Reduction Act has helped with that to a very large extent. And I believe it is going to be, you know, a factor going forward, you know, over the next 510 15 years. And helping us figure out ways to produce hydrogen in low carbon means and then doing something with that hydrogen. So the mix is going to diversify. But really, until a year ago, you know, the US didn't have a regulatory infrastructure in place to really make it happen. And so as a result in some of these, as we're going to talk about are very long lead time projects to develop. So we're still looking at a mix in the US, I guess, is 95%, or higher of traditional gray hydrogen.

Sean McMahon  06:18

Okay, and now, the paper also does an excellent job of kind of outlining the various use cases for hydrogen. So take a listen to that, what are some of the most common use cases.

Alan Alexander  06:28

So what a lot of people are talking about with hydrogen are not kind of the traditional ways it's used the traditional ways it's used or, you know, in refining processes in petrochemical production, you know, there certainly is some of that. And we're seeing a lot of developers who want to develop, you know, low carbon ammonia plants, for example. And that involves producing low carbon hydrogen. But some of the really exciting uses for hydrogen and some of the things not only are people talking about, but that we're beginning to see people attempt to develop our hydrogen as a mobility solution, you know, you can right now buy a hydrogen powered car if you want to, but there is a bit of a lack of a fueling infrastructure in the United States, there's companies like Nikola are trying to develop large trucks, there's hydrogen bus fleets. And there's initiatives, you know, and there are developers trying to figure out how to develop a hydrogen refueling network, that's one very exciting prospect for it, a number of people are looking at essentially using hydrogen as a form of energy storage. So you know, rather than taking wind or solar, you know, that might not be able to be used at the time it's produced and essentially lost. You could use it to power electrolyzers produce hydrogen, if you could store that hydrogen somewhere, possibly underground or somewhere else, and then release it and combust it, you know, at a time when the grid needs power, then you're essentially finding a way to do large storage projects of renewable power. A number of companies are now looking at experimenting with and implementing projects to use hydrogen as a reduction agent in the production of steel. Normally, the reduction agent was just you know, you'd have molten iron, and you'd put carbon in it to essentially take out, you know, some of the sticky carbon molecules, but it would have meant a lot of carbon in the process. But if you can use hydrogen as that reduction agent, it lowers the carbon footprint associated with producing steel. And so a lot of people are investigating that. And it's a very exciting prospect. A lot of what we're seeing right now, also, are what we call power to fuels projects. And they're very exciting. And I think one of the challenges hydrogen faces is that the transportation and handling and storage and distribution network for it essentially doesn't exist. And for a number of reasons, it's a difficult molecule to store and handle. But if you can take renewable power used to make hydrogen and then use that hydrogen to essentially fabricate natural gas, and from there possibly make not diesel, sustainable aviation fuel with it, then you have instantly a transportation network that already exists in the United States to handle and transport a lot of these fields. So the power to fuel space is a place where we're seeing you know, a lot of clients, a lot of developers, you know, really gained some traction, you know, it's a very exciting space as well it overcomes a lot of problems that hydrogen faces. Final one is kind of near and dear to me is basically using hydrogen to make low carbon ammonia. Ammonia is kind of a base chemical and building block for a lot of other things, fertilizers, explosives, and what have you. You know, of course, in and of itself, it can also be part of the energy transition mix, there are companies looking at using ammonia as a power generation fuel itself. And if you can produce that ammonia in a low carbon manner, and you know better for everyone. So, anyway, there's a lot of uses being explored. I would say ammonia and power to fuels are the places where we've seen kind of the most traction so far, you know, maybe storage a little bit less and mobility a little bit less, but they're beginning to catch on. So

Sean McMahon  10:00

I really appreciate that breakdown. I mean, you definitely touched on a couple of topics we've covered on the show, you know, hydrogen hubs and the storage for that way. And then also sustainable aviation fuel and things like that. But you also did mention the handling of hydrogen. And obviously, that's a concern for a lot of people. What are some of the concerns there? And how are those concerns being addressed?

Alan Alexander  10:20

Well, with any combustible material, people are going to be worried about safety. You know, fortunately, in the United States and Europe, I think we're very good at transporting combustible materials under pressure in a way that safe, you know, and hydrogen would certainly fit in to being a combustible material. You know, there's not an extensive distribution network for hydrogen, there's one in along the Gulf Coast of the United States to supply refineries and petrochemical facilities, those companies, the industrial gas companies operate with very good safety record. Of course, if we're going to do it larger and at scale, you know, we're going to need to develop ways to basically handle store and transport hydrogen safely. But I'm confident that we've got the expertise to do that, because we've been doing it with a lot of other Flammable and combustible materials for years. Now hydrogen is unique. It's a small molecule that can see out of cracks that other things can't. Everyone at some point in their life has also seen the black and white video of the Hindenburg exploding, which probably conjures up a negative association. But yeah,

Sean McMahon  11:23

just jump in there real quick. Yeah, it's definitely one of the things people think about a lot. And also, just in terms of the infrastructure for it, I mean, I've talked to folks in an energy trading landscape, and they're kind of, they're somewhat skeptical, like, whether it's gonna get built out built out safely. So you're confident that can happen?

Alan Alexander  11:39

Well, I think your friends and your trading friends are onto something. And I think it's a point, you know, maybe we didn't mention explicitly enough in our paper, but that I stayed a lot, you know, I don't know that we are going to build out an extensive nationwide hydrogen, transportation, storage and handling infrastructure similar to like, for example, what we have for natural gas, but we may not need do, you know, a lot of the things that we're seeing get some traction, you know, like power to fuels, for example, just get around that problem. You know, you produce the hydrogen, you turn it into natural gas, methane, and then essentially, it's natural gas, you put it in that existing transportation network, or, you know, the way hydrogen lots of times is used now, you know, it's basically produced on site, or, you know, within close proximity to its final induced destiny, or its final in use. So, you know, I, unlike a fossil resource, like natural gas or oil, where, you know, it just comes out of the it comes out of the ground wherever geology and God decided to put it, you know, hydrogen production, you can, you know, it is produced, you can decide where you're going to produce it, you can produce it closer to your end use infrastructure if you need to. And so a lot of the projects we see actually getting traction, you know, kind of inherently understand that, and just cite their hydrogen production close to where it's actually going to be used to the extent possible. So that, you know, is more possible on the, you know, in what we would call the blue, or maybe the turquoise, hydrogen production methodologies, you know, some of the things like a trial of electrolysis that require large amounts of renewable power, renewable power is going to be produced in West Texas or Arizona, you somehow need to either produce the hydrogen there and transport it or get the renewable power into where you're producing hydrogen. But transporting, you know, electrons subject to grid capacity and constraints is, you know, also already exist. So,

Sean McMahon  13:37

okay, and you mentioned electrolysis, and we can't talk about electrolysis without talking about electrolyzers. And, you know, with all these new projects coming online, whether it's renewables or any of the sources, it seems to me there's going to be a worldwide demand for electrolyzers. Yes. What does that supply chain look like? And or is there any kind of concern where there might not be enough of those to go around?

Alan Alexander  14:00

You know, Shawn, that's a really good question. I have been trying to bottom out the answer to that one for a while. And I wish you know, I wish I could give you a definitive answer, but I've read reports that indicate, you know, production capacity is ramping up and as projects you know, begin to take fit, the capacity will be there. I've read reports that indicate there's going to be a huge capacity constraint on electrolyzer production because the amount of projects that are getting announced and the amount of electrolyzers that are going to be needed are going to far outstrip, you know, production capacity before it comes online. I read other reports that indicate it's actually even worse than that because a lot of the different electrolyzer technologies use rare earth minerals that are produced in places that might be under sanctions right now such as Russia. So I think it's murky. And, you know, I'm not exactly sure whether we're going to be facing a supply chain constraint as it comes to, you know, electrolyzer production capacity or not, you know, it It's, it's definitely something I think project developers need to be aware of, and maybe need to contemplate, you know, finding an electrolyzer supplier earlier in their procurement process as opposed to later, you know, just to be on the safe side, but at least for now, it's not entirely clear to me what that supply chain picture looks like.

Sean McMahon  15:18

We will be right back building a brighter tomorrow starts with illuminating greater possibilities today. That's why Deloitte helps organizations weave sustainability into their business decisions. Join Deloitte and creating a brighter cleaner tomorrow, to discover what sustainable, renewable and possible in the future of energy, click on the Deloitte links in the show notes. And hey, while we're talking about Deloitte, if you want to hear directly from one of their experts, check out the most recent episode of the sustainability smart pod. during that episode, I chatted with John mental, a managing director and Deloitte sustainability, climate and equity practice. John walked me through some awesome tools that Deloitte has to help companies plan and execute on their decarbonisation strategies. I learned a lot. So I'm going to include a link in the show notes of this episode, so you can give it a listen. And now back to my conversation with Alan Alexander from Vinson and Elkins, you know, at the top of this interview, you mentioned the inflation Reduction Act, and how that's, you know, anticipated to create quite a boost for this sector. And so walk us through the specific points of that, and just how big of an impact things like tax credits and other incentives might have for the hydrogen production industry.

Alan Alexander  16:37

They're an absolute game changer. And, you know, Shawn, as I mentioned earlier, a year and a half ago, when we would talk about low carbon hydrogen projects, they never really went anywhere. You know, they very quickly at least, the United States ran into, you know, economic realities and those economic realities, where it costs about $6 per kilogram to produce a kilogram of green, if you will, hydrogen, you know, the like renewable power, they're gonna electrolyzer cost around the dollar to $1 and a half to produce that same kilogram and the steam methane reformer, so it was just not cost competitive, you know, at a potential $3 per kilogram production tax credit, that math changes pretty quickly, you get a lot closer to parity. And then depending on your how your project is structured, you know, the renewable power generation could qualify for IPO investment tax credits, or production tax credits. If you have standalone storage, there might be a credit associated with that, if you're doing a power to fuels project, there could potentially be the availability of a 45 Z credit for advanced biofuels, although you'll begin to run into anti stacking provisions. And of course, the projects that are utilizing carbon capture could qualify for 45 Q, some of those projects can do things to potentially depending on what Treasury may or may not allow, but to get the carbon intensity of their hydrogen low enough. You could have what it nominally be a blue hydrogen production project that could qualify for production tax credit, we've seen some developers try to try to explore that route as well by doing things like supplying some of their natural gas with renewable natural gas from agricultural sectors in the Midwest, for example. So it's really exciting. And it's got a lot of people, you know, took these projects that were on the whiteboard, but never even made it off the whiteboard and the term sheets and just really got some things now that are in term sheets, that have parties throwing real resources and developing them. There's capital being raised to support some of these things, you have financial sector that's really looking at ways to make them work and make them bankable. So you know, the inflation Reduction Act was an absolute game changer as it relates to hydrogen, it has made it viable in the United States.

Sean McMahon  18:52

I was gonna ask you about tax credits, and what's been talked about a lot of stacking up the different tax credits, right. But you you just mentioned something in there about anti stacking measures. So what is that all about?

Alan Alexander  19:01

Well, as it relates to hydrogen, if you are producing hydrogen, and what would be referred to as blue, which is utilizing carbon capture technology, and you take a 45 Q credit for the permanent sequestration of carbon oxides, then that facility, there's a provision in the i in the inflation Reduction Act that says no taxpayer who's taken a tax credit from a facility, you know, as a result under Section 45 Q basically, for the capture and permanent sequestration of carbon oxides. They can't then change their mind later and take 45 V, you know, they have to take one or the other and if they've ever taken 45 Q, they can never take 45 V. And so you essentially can't stack those two grand you got to choose one or the other. And then kind of depending on what you're doing, you know, there the IRA inflation Reduction Act had a ton of credits available to it. Some of them taxpayers and facility aren't allowed to take multiple credits. So, for example, I believe 45 z, I want to confirm with my tax colleagues, you can't take that if you're taking 45 v. So it really forces you to kind of look at your projects, figure out which tax credit is the most powerful for what you're trying to do, and optimize around it.

Sean McMahon  20:18

Now, the paper also talks about some of the hydrogen hubs that are part of the policy here in the US and just explain those real quick, like I said, we've had a couple episodes about those. But what are the insights from this paper as it relates to hydrogen hubs?

Alan Alexander  20:31

Yeah, what I like about the hydrogen hubs, and one of the things we talked about the paper, whereas the inflation Reduction Act was largely a supply side, input this mechanism, you know, it's encouraging people to produce these things in the United States, and using the tax code as a method to do that. What the hydrogen hubs are trying to do is, you know, stimulate and develop demand, you know, so I really like the hydrogen hub program, because it's a government putting eight $10 billion to work to say, okay, industry, give us some unique ideas to as to how to use hydrogen, you know, show us who you're going to partner with, show us what you're going to do show us how it's going to be used, what it's going to solve. And you know, what, if we like your idea, we are going to give you 100 million a billion dollars to go out and get this done. And I know the old saying, whenever the government's offering you something for free reach for your wallet, but it really is a grant, of course, there are a few strings attached. There's no requirement to use some of the funds and community development initiatives and other things and things of that nature. But for the most part, it is a give us a good idea. And if we select you, we'll give you money to help make that happen. So it's government putting, you know, taxpayer dollars to work in a way to try to develop hydrogen demand across the country. And I've been involved with some clients on, you know, some of the hub applications, it's really kind of interesting and innovative, some of the things that our client, people are thinking about doing to stimulate hydrogen demand and use in the United States. So I think, looking forward to seeing the winners of the hub program, hopefully later this year, and then we can hopefully see how that begins to develop out of hydrogen infrastructure in the US.

Sean McMahon  22:17

Yeah, I mean, I'm I'm Myskina ZR to see you kind of comes out of those, you know, secures those projects. But stepping back from the us a little bit, you know, your paper talks about some of the things going on in the in the EU, with a temporal and geographic requirements that that firms are going to be aware of, and perhaps abide by. So. So what are this?

Alan Alexander  22:35

Yeah, so at a 50,000 foot level, you know, as I just mentioned, what the inflation Reduction Act is done to stimulate supply, you know, hydrogen hubs are trying to stimulate demand, but a lot of what the EU has done, you know, to kind of regulate and require the use of low carbon fuels, or at least some degree of low carbon fuels are essentially demand side stimuli. So, what we're seeing, you know, as are a lot of people wanting to develop projects in the US to produce hydrogen or hydrogen based fuels that will then be sold in Europe or Asia or somewhere else, where, you know, getting the supply side stem getting the supply side support here to comply with demand side requirements there. And some of the things the EU has said and recently promulgated delegated acts and others are that, you know, okay, that's great, but if you want to get in basically a renewable fuel from a non biogenic source into the EU, here are some of the requirements and some of the requirements are, it will only qualify if I forget the percentage, but over an X percentage of the electricity in the region where the hydrogen project flow car was located, came from renewable fuels or nuclear from a low carbon source. You know, the other things are saying if you're using renewables, then you know, over time, you have to be sure that you know, the renewables you're using, you know, were produced at a time when your hydrogen electrolyzer was functioning concept called matching and the issue with matching is you know, what is the temporal requirement to it is an annual matching so just as long as there was renewable power produced during the year can match it up with your hydrogen production in that year is monthly isn't weekly as an hourly in some cases, you know, and so the matching requirements with respect to when the electrical power was produced that was used to power your electrolyzer could be a bit of a constraint and you're gonna have to monitor like, the power that powers your electrolyzer. And within, you know, the hour, when was it produced, you know, those matching requirements, I believe, ramp up over time. They're not required initially, but it is something that the EU is going to require. The other one is the concept of additionality. You know, the EU does require over time it phases in additionality requirements so that if you're going to produce hydrogen from with the leg fertilizers using renewable power, you have to have added renewable power capacity to the grid. Otherwise, you know, the logic being you know, what you're doing is you're just taking renewable power from someone who would have used it anyway to power your electrolyzer. And that person who would have bought the existing renewable capacity is essentially buying non renewable power. So the net effect is is nil. So additionality requires new renewable capacity to power, the new renewable demand. And like I said, these are delegated acts, I'm no European legal expert, from what I understand, you know, the Commission will approve them, modify them implement them later, you know, what they say now may not be how they're ultimately approved and implemented. But it does give us some insight as to what the EU is thinking. What it's telling developers is, that's great if you want to go to the US and develop a hydrogen project. But if you want to get your fuel into the EU, here's the requirements, you're going to have to comply with.

Sean McMahon  25:55

It. Okay. And so moving on to like the next section of the paper here. So I'm just thumbing through it. Obviously, I'm not a project developer. But there are some great insights there for project developers kind of advice on things to consider things to remember, as you're, you know, working on putting something together, what are some of the key takeaways there?

Alan Alexander  26:14

There's a number of things, this is one of the things that's really exciting, at least for a lawyer is, you know, nothing we do in developing a transaction is rarely any way, you know, new and something we've never actually done before, you know, everything we do is, you know, even the new stuff is a little bit derivative, you know, and what we're doing are, is essentially, producing, selling and delivering a commodity of sorts, or using it to produce a commodity that then gets further sold. But all of a sudden, we're doing it in a way where what we really, really care about, or one of the things we really, really care about is the carbon intensity, or the carbon footprint of this fuel producing. And so one of the things that have cropped up in documents when we're beginning to negotiate kind of low carbon hydrogen projects, and you know, low carbon fuel projects are, how do you actually certify that the carbon intensity of the product as it's being produced, because Ira doesn't one way, the California air emissions board, air resources board doesn't another, you know, there's all sorts of different ways to calculate carbon intensity, and, you know, you're gonna get differing results, depending on which method you use, you know, some companies have their own way of doing it, there's third parties who will come in and kind of figure it out for you. But at the end of the day, you need to settle on a way to actually calculate the carbon intensity. And then you need to determine what that means. You know, normally, when a product commodity doesn't satisfy a specification, it's considered off spec and either return it or get a refund or something. Well, here, what you have is a product that might otherwise be completely usable executive, it didn't satisfy the carbon intensity requirement. You know, it's just not. It's not as carbon intensive as is it as we were hoping it would be. But it's otherwise completely usable for the purpose that was produced. Well, what does that mean? Beforehand, if it didn't meet a spec, it wasn't usable. Now it's usable. It just doesn't have the attribute we wanted it to have. Those attributes are also a key source of value, you might produce a low carbon fuel. But who gets the right to claim the carbon accounting of benefit? Or it? Should it be the producer? Or does the customer want the carbon accounting benefit? And how much is that benefit? The ability to claim actually the carbon reduction? How much is that worth? You know, every time you buy an airline ticket, now you see the amount of carbon associated with your flight? Well, there's people who want to be able to account for that carbon carbon accounting is becoming a big thing. And as we know, in accounting, you can't double book you know, some one person takes a carbon reduction and one person won't. There's other attributes associated with these things. Sometimes the ability to generate a bio currency in biogenic fuels, you know, what we have are things like writtens and LCFS credits. Well, if something similar develops for non biogenic fuels, who has the right to claim those? And so there's this whole basket, you know, this whole bundle of sticks, if you will, a value that a lot of these products bring with them that people need to be cognizant of and be sure they don't give away in negotiations. You know, another thing that's very difficult with hydrogen and low carbon fuels is the pricing element of it. There's what's called the Green premium, you know, how much more do you pay for something just because it's low carbon? You know, with traditional commodities, normally, you can just look at an index and say, well, there's the price, but, you know, there's not a whole lot of indices that have developed yet to let you say, how much a low carbon commodity should be. Sometimes the indices are the starting point. But we don't want the indices being what our you know, low carbon fuel is worth because it's a value added product. You know, it should be more than whatever the industry is, but how much and how do you calculate it? You know, so a lot of these are some of the kind of in the weeds issues. We're seeing Paul Coming up change in law is always an issue in negotiating a contract, even more. So when what's underpinning a lot of the value or governmental programs or tax incentives? I would say kind of the big takeaway, though, in the big thing, you know, I counsel clients on early on is to define what their project is. Seems pretty elementary. But if you're just doing hydrogen, well, you also need renewable power. And if you're doing hydrogen, what are you doing with it is someone then taking it to turn it into a fuel? And very quickly, you begin to see that you have a lot of what we call project on project risk. You know, what happens if my hydrogen project is ready to go, but the renewable power facility hasn't been built yet? How do you address those issues? And what happens if I get my hydrogen facility built, but the methanation unit that's going to turn it into E natural gas isn't ready yet, you know, in some of that, sometimes, that's easy. If it's one developer doing everything, even then it's complicated. But it becomes a lot more complicated if you have third parties doing these disparate parts, because you got to make sure unrelated entities are timing up their construction and operations to sync up with each other. So it's really important, I think, to early on, define what you're doing, identify your partners, make sure you know, you're synchronizing your project work together, minimizing project on project risk, to the extent possible, you know, so that, you know, when things come online, they come online, seamlessly and synchronous.

Sean McMahon  31:29

So you mentioned kind of the the dangers of having third party construction, and you know, the timing not being all synced up, do you see more projects being like that, where maybe one entity is going to own the whole thing and be able to control have a little more control over the schedules? Or will it be more common to have, okay, they're building the renewable source, or they're building this source. And we're all kind of trying to sync up the timing,

Alan Alexander  31:51

I think it's going to be in a lot of these two, at least three people, renewable power development is a very robust and develop sector in the US, actually everywhere. And the people who know how to do that, and do it well, are known and defined and are very good at it, we need to let them do that, you know, that's what they're good, I think, probably even cheaper than everyone else. There aren't a whole lot of people out there, maybe anybody who knows how to develop large scale hydrogen production projects with electrolyzers. That's what people need to learn. And, you know, adjacent to that is, you know, methanation and Gas to Liquids. But what I see developing are, you know, is renewable power development kind of continuing to just be renewable power development. But that's where a third party basically gets retained by a hydrogen project to say, develop me this 500 megawatt renewable power facility, I will purchase all the output from it. And then we'll use that to power my hydrogen facility. And, you know, the people who know how to do that renewable development can do it and can do it. Well, the people who will finance it, you know, are kind of not the same people who may finance hydrogen, electrolyzers, and methanation, and petrochemical projects, the tax equity market of the world is relatively established, you know, they know what they're doing, they know how to look at a renewables project and come in and finance it. And what we've heard is a lot of them aren't too interested in some of these new technologies, yet, you know, they'd rather just stay in their lane and stick with what they know, you know, which means what you could end up having is a renewable power basically gets done by the people who know how to do it financed by the people who are comfortable with it, while the new stuff the hydrogen and the methanation, the gas and liquids, everything else. Is it private equity? Is it commercial banks, you know, a combination of both, and maybe one of the big tax equity players decides to get into it. Direct pay and transfer ability of the credits also opens up other people who might want to come in and finance the the tax credit portion of this, that's kind of an emerging area in a TBD what it'll look like. So there's a lot more questions on the hydrogen and the methanation side than there are on the renewable power side. You know, I think some of the more viable ones and the ones we're seeing come in, at least for now, are the someone's doing the renewables. Someone else is doing the hydrogen and the what do you do with the hydrogen? And they kind of partner up?

Sean McMahon  34:18

Okay, now, when I thumbed through this paper, and I kind of get a sense for what you're trying to do here, it seems like it's a excellent survey of what the hydrogen landscape looks like right now. So what is the one key takeaway you're trying to convey with this paper?

Alan Alexander  34:33

Yeah, you know, the one key takeaway is, hydrogen is real. You know, it's viable now in the United States inflation Reduction Act has had a big part of that. developers need to be cognizant of how hydrogen can be used, you know, what are some of the stronger use cases for it as opposed to others? And, you know, what are some of the issues we've seen developers have to grapple with so far? So we Start with a very broad overview. This is hydrogen, this is all the ways it's being produced, talk about some of the use cases. And then we kind of want people to focus on what we've seen be important in developing a hydrogen project so far, so that they're cognizant of these areas, and they're ready for them when they appear. And, you know, if they have any questions about how to address them, or anything, are certainly here, and I'd be happy to talk to him about it. But it's just that, you know, it's, we're excited about hydrogen, we know it's got a future. Here's some of the things we've seen. Let us know if we can help you.

Sean McMahon  35:35

Wait, listen, Alan, this has been wonderful. I'm gonna encourage everyone to download this paper and read it. I'll have a link to it in the show notes. I really appreciate your insights.

Alan Alexander  35:44

Sean, thank you very much for having me on. I really enjoyed talking about this. I mean, I'm spending a lot of time on it these days. I think there's a tremendous amount of potential here, I think hydrogen is going to be a part of the energy transition in the States. You know, it's exciting to see just how far it's come and barely a year. And you know, it's exciting to think about where it's going to be in another year or two or three. And I can't wait to see, you know, how it unfolds and, and kind of what the hydrogen economy looks like two or three years from now.

Sean McMahon  36:12

Hey, I'm as excited as you are. Thank you for your time. Thank you, Shawn. Well, that's our show for today. But before we get out here, I want to say one final thank you to the sponsor of today's episode. Deloitte.