A year and a half ago, the U.S. green hydrogen market was buzzing. The Biden administration had just announced $7 billion in funding for seven regional clean hydrogen hubs, plus another $47.7 million for research and development efforts around the country. And the Inflation Reduction Act had established a tax credit of up to $3 per kilogram of qualified clean hydrogen — though the process of getting the rules finalized entailed over a year of debate and controversy.
Electric Hydrogen’s approach involves creating large-scale, 100-megawatt electrolyzer plants for industrial projects; the company isn’t a hydrogen producer, but rather makes the equipment that enables customers, like ammonia plants or SAF facilities, to produce their own, When 2024 began, Electric Hydrogen had just raised $380 million, pushing its total valuation to over $1 billion; by spring, it was looking to new types of financing. The company announced plans to open its own gigafactory in Massachusetts, and to supply electrolyzers for one of North America’s largest green hydrogen facilities.
Today, however, the industry is in a so-called “trough of disillusionment,” meaning waning interest and, in some cases, failure to deliver. As a result, Electric Hydrogen is scaling up manufacturing capacity in a field with immensely long lead times and high costs — right as enthusiasm for green hydrogen is cooling, thanks in part to high costs, policy uncertainty, and an uncertain landscape for project finance.
In order to keep costs down and scale quickly, the company is pursuing a dual-location approach to manufacturing its massive electrolyzers. In Devens, Massachusetts, Electric Hydrogen’s gigafactory came online earlier this year, where the proprietary electrolysis stack — where hydrogen is actually separated from water — is made.
And last week the company publicly named its partner for the second component of its plans: Titan, a Texas-based equipment manufacturer with expertise in building process modules for the oil and gas industry, will manufacture the remaining components and assemble the plant.
Financing a scale-up
As Electric Hydrogen CEO Raffi Garabedian explained on a recent episode of The Green Blueprint, building a factory for unproven technology presents a classic chicken and egg problem. Customers want proven products at scale, but getting there requires manufacturing capacity, which of course requires financing.
To build out the Devens facility, Electric Hydrogen secured debt financing for the equipment, rather than burn through their venture funding.
“Who’s going to lend you money to build a manufacturing facility for a product that’s unproven yet?” Garabedian said. “In comes a class of capital equipment finance capital, which is kind of like a mortgage on your house.”
Listen to the whole interview with Raffi Garabedian on The Green Blueprint:
Essentially, this financing structure used the manufacturing equipment itself as collateral, which significantly reduced the capital risk in the event that Electric Hydrogen couldn’t pay back the debt. Additionally, the company nabbed a $46.3 million grant from the Department of Energy,under the Bipartisan Infrastructure Law’s clean electrolysis program.
Meanwhile in Texas, Titan offers scalability, which is crucial to Electric Hydrogen’s plans. That’s where the rest of the plant — which senior VP Jason Mortimer described as a combination of electronics focused on getting power at the right frequency, voltage and current, and chemical processing equipment to keep gasses separated — is being built.
The company largely sources its power conversion systems from Europe, Mortimer said. In fact, about “half of the value of the plant is of European origin,” he said. The bulk of the remaining components that go into that electrolyzer plant are sourced from North America.
Once completed, elements will be shipped directly to a project site from both the Massachusetts factory and Titan’s factory in Texas, and assembled on site. The plants are modular, designed to fit on a truck and to snap together “like Legos,” Mortimer added. Assembly time, once all the components are at a project site, is around five months.
Titan’s Texas location is also key to keeping costs down; not only does the region have a strong workforce for the job thanks to the oil and gas industry, but it’s conveniently located for Electric Hydrogen’s early customers.
“All of the infrastructure for the industrial growth of the hydrogen industry in the U.S. is really concentrated around the Gulf Coast,” Mortimer explained. The vast majority of shipments will come from Texas, and because the plants are “big, heavy, bulky modules,” it’s preferable — and cheaper — not to have to ship them long distances.
The first system is expected to ship out from Texas next month, and to be commissioned and producing hydrogen by the latter half of this year. At that point, Mortimer said, Electric Hydrogen expects that project to be “the largest PEM electrolyzer plant on the continent.”
The market hold
But despite having successfully brought its manufacturing capacity online, the reality is still that the U.S. market is in something of a holding pattern.
“The domestic market is certainly moving at a slower pace than we had forecast a couple of years ago,” said Mortimer. “A fair bit of it is uncertainty in project finance. Are the tax credits going to be there? Is the hub money going to get spent?”
Part of Electric Hydrogen’s approach to navigating that downturn, explained Garabedian, was getting more selective about customers. Instead of accepting capacity reservation agreements, where customers would pay several million dollars to reserve future capacity, the company is now focused on firm purchase orders.
“We spend a lot of time thinking about ‘Why does the customer’s project make sense?’ Because if it doesn’t make sense, it really actually probably won’t get built,” he added. The company is particularly focused on customers with strong balance sheets who can tolerate technology risk and rely on their own capital, rather than turning to a bank.
In the short term, that has also meant shifting from Electric Hydrogen’s initial focus of deep decarbonization across multiple industries, toward more immediate markets.
“The immediate action right now has moved a little bit toward the use of hydrogen gas, specifically in point source requirements, like refineries that need hydrogen gas for catalytic cracking, and for synthetic fuels, namely sustainable aviation fuel, for which there are some blending mandates that are real and actionable now,” Mortimer explained.
In the long term, the company still sees green hydrogen’s “ultimate destiny” in base chemicals, namely ammonia, Garabedian said.
But there’s also more potential outside the U.S. While waiting for the domestic market to develop, Mortimer said near-term demand is significantly stronger in Europe, supported by a mix of incentives and mandates. As Mortimer put it, the company ““may yet manufacture plants in Texas and send them to Europe.”
The company is of course closely watching the evolution of global trade policies, including tariffs that could impact the prices of their plants. “These are long-lived, capital intensive projects, and customers need certainty on the delivered cost,” Mortimer said.
For now though, Electric Hydrogen plans to continue manufacturing domestically, at least for the foreseeable future, Mortimer said: “The only reason that we would consider relocating the fabrication of those modules [to Europe] is if we could get the same quality and equivalent or lower cost, potentially closer to the end market.”
