Project finance

Electric Hydrogen turns to 'really efficient capital' to expand manufacturing

As the electrolyzer company readies its first large-scale factory, Trinity Capital invested $50 million in equipment financing.

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Photo credit: Electric Hydrogen

Photo credit: Electric Hydrogen

The green hydrogen company Electric Hydrogen is gearing up to start production at its first large-scale factory — and is bringing in new money, and new types of financing, to make it happen.

  • The top line: Electric Hydrogen announced this week that it raised $50 million in equipment financing, provided by Trinity Capital. The company structured its manufacturing process to rely primarily on equipment that has been well-proven and widely used in other industries — and that strategy set them up to secure this non-dilutive financing at a lower cost of capital than other options. 
  • The nuts and bolts: The funding from Trinity adds to Electric Hydrogen’s pot of over $600 million from a range of investors, including Amazon’s Climate Pledge Fund, BP, Breakthrough Energy Ventures, Fortescue Metals, and Microsoft. The company’s $380 million Series C funding round, which closed last October, valued the company at over $1 billion. However, the company has yet to begin producing its 100 MW electrolyzers in significant volumes; production will begin at its first large-scale factory in Devens, Massachusetts in the second quarter of this year, and will ramp up to full production volume — or 1.2 gigawatts per year — in 2025.
  • The current take: Derek Warnick, co-founder and CFO of Electric Hydrogen, said a key part of the company’s strategy is establishing a manufacturing process that relies on familiar elements. “A lot of the equipment that we use has been very well proven and is used at scale in other manufacturing industries, such as solar or…thermal power or automotive,” he told Latitude Media. “And that enables us to utilize really efficient forms of financing for our manufacturing facilities, particularly for the equipment.”

While Warnick sees most founders first develop their product and manufacturing approach, and then determine from there how they go about building the factory, the Electric Hydrogen team prioritized keeping the costs of that build low from the beginning. (The company was founded in 2020.) It wasn’t a question of how to finance things as cheaply as possible, he added, but rather of choosing a process that relied on equipment with mature supply chains that could be procured quickly and easily. 

“If we had a really highly customized industrial laser that we were the only one on Earth to use, it would be very tough for us to find anyone willing to finance that,” Warnick said. “Investors wouldn't be able to understand what the unit was, and they wouldn't be able to put significant capital work behind it.” 

Using equipment that is already used in factories around the world, he added, makes it easy for companies to provide the necessary equipment finance, which is low-cost for Electric Hydrogen. 

Electric Hydrogen’s goal is “to design our product in a way that will allow us to reduce costs as much as possible over time, design it for manufacturability so that it can be produced at the volumes necessary to really make a global impact, but also make sure that our design for manufacturing allows us to capitalize the manufacturing assets themselves in a way that really makes sense,” said Warnick.

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‘Really efficient capital’

This somewhat unusual approach is the product of the team’s experience. Both of Warnick’s co-founders, David Eaglesham and Raffi Garabedian, are veterans of the solar manufacturer First Solar. Warnick was previously at Breakthrough Energy Ventures, where he worked with portfolio companies to help them “create more efficient financing strategies.” (That role was where he became acquainted with Trinity Capital, provider of Electric Hydrogen's $50 million in equipment financing.) 

A key approach he espoused in that work was using non-dilutive capital, both corporate debt and equipment finance, in order to save equity financing from venture capital and private equity groups for things like research or growing the team.

Warnick described the equipment financing that Trinity Capital has made available to Electric Hydrogen as “really efficient capital” that will enable the purchase of equipment that has a lot of value for the company itself, but is less attractive to an equity investor looking for a higher rate of return. 

The funding, Warnick said, will enable the company to continue to scale its manufacturing capacity as it brings on more customers. The company said when its Series C funding round closed in October that its customers had so far reserved over 5 GW of electrolyzers over a period of multiple years — those orders are in the form of both purchase orders and firm reservations. Warnick said the 1.2 GW Devens factory will have enough capacity to meet customers’ near-term needs.

Among the customers Electric Hydrogen has already signed are both renewables company Intersect Power, and mining company Fortescue Metals (which is also an investor). The other, not-yet-public customers, Warnick said, are largely in the power or renewable energy sectors, or are otherwise large industrial players.

The company is already mulling what and where its next increment of manufacturing will be, he added, though it is “highly likely” to be located in the U.S. That said, the company has also begun looking at “compelling markets” abroad, especially in light of its multiple investors located outside of the U.S.

Building in an uncertain market 

This round of equipment financing comes in a strange moment for the hydrogen sector. 

Despite plenty of enthusiasm about green hydrogen’s potential to decarbonize hard-to-abate emissions like those from heavy industry, the electrolyzer has been largely stymied by a lack of short-term demand, in part due to customer uncertainty about lack of supply. But 2023 was a year of funding abundance for electrolyzer startups like Electric Hydrogen, Verdagy, and Ohmium, which leaves them poised to ramp up production in the hopes that demand will follow the new supply — and federal incentives. 

The Biden administration is actively looking to bolster the industry via projects like the hydrogen hubs, and the Inflation Reduction is poised to offer subsidies to green hydrogen manufacturers — despite ongoing controversy about whether the guidelines on who is eligible for support are too stringent to give the market the support it needs.

And globally, electrolyzer demand is still “undershooting” manufacturer expectations, according to a recent report from BloombergNEF, which found that electrolyzer factories are on average operating at 10% of their capacities.

Asked whether this potential supply-demand mismatch is of concern, Warnick said “there’s naturally some uncertainty about how steep the curve of adoption will be” with any fairly nascent industry, like green hydrogen. But Electric Hydrogen is already seeing “strong demand” from customers, and Warnick added that as renewables prices continue to drop, green hydrogen made via electrolyzer will become more appealing; the market is appearing now “predominantly because renewable energy was not cheap enough previously for this to make any sense at all."

“But with ultra low cost renewables…it is absolutely possible to split water cheaper than pumping dinosaurs out of the ground," he said. "If that's possible, that changes a lot of things.”

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