Analysis
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Hydrogen

Flush with new funding, electrolyzer startups are ready to ramp up

But will demand for green hydrogen follow?

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Published
February 8, 2024
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An electrolyzer factory

Photo credit: Verdagy

An electrolyzer factory

Photo credit: Verdagy

With the long-anticipated rules for clean hydrogen tax credits released and regional hydrogen hubs announced, 2024 could be the year of the electrolyzer.

Electrolyzers produce hydrogen by using electricity to split water molecules apart. Right now, less than 1% of the world’s hydrogen is made with electricity from renewable sources — but that could soon change. Green hydrogen is considered a promising decarbonization solution for industries from steel and chemical manufacturing, to trucking and aviation.

Last year, funding poured into domestic electrolyzer start-ups such as Verdagy, Ohmium and Electric Hydrogen. Now all three companies are looking to rapidly ramp production, banking on the hope that the newly proposed rules will catalyze demand in the U.S. market, and that they’ll find additional customers abroad. 

As electrolyzers roll off the production line and technologies are tested at scale, 2024 will be the year that the industry starts to learn which approaches work and which don’t — and perhaps most importantly, whether federal incentives combined with economies of scale will be enough to drive down clean hydrogen prices to the point where demand picks up.

A new twist on an old technology

Rahul Bammi, president of Verdagy, said that interest in his company’s electrolyzers has increased since the release of the 45V guidelines. The new rules stipulate that to be eligible for subsidies, clean hydrogen must be produced from newly built, carbon-free energy sources, and Verdagy’s electrolyzers integrate much better with intermittent wind and solar resources than today’s prevailing tech, he added. 

China is estimated to have around 50% of the world’s installed electrolyzer capacity, the bulk of which are alkaline electrolyzers. This old technology is cheap and easy to scale, but traditionally more difficult to pair with renewables. 

Verdagy produces alkaline electrolyzers too, but with a twist. The company adds a membrane-based single-cell architecture to the century-old tech, which means they can control each cell “very granularly,” Bammi said. This allows Verdagy to respond quickly to fluctuations in power supply, ramping up and down in conjunction with the availability of renewable resources. 

Bammi also said that Verdagy’s membranes are some of the largest in the world and that its system can run at high current densities, which enables more hydrogen production per cell. 

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The company closed its $73 million Series B round last August, and plans to begin production this year at its new manufacturing facility in Newark, California. It’s targeting industrial scale applications with its 20-megawatt units, which Bammi said can be “put together like Lego blocks” to accommodate a range of project sizes. The company is aiming for just under half of a gigawatt of annual manufacturing capacity by year’s end, with plans to grow to two GW in 2026. 

According to the International Energy Agency, there’s only about 14 GW of electrolyzer manufacturing capacity worldwide, and about 3 GW of installed capacity

The IEA found that reaching net-zero emissions by 2050 will require over 550 GW of installed electrolyzer capacity by 2030, a goal the world isn’t on track to meet. In mid-2023, the agency estimated that if all electrolysis projects in the pipeline were built, it would lead to a maximum of 365 GW by 2030

It’s very unlikely that all of these builds will happen though. As the IEA report notes, clean hydrogen projects face a challenging landscape due to, “uncertainty of future demand, lack of clarity on regulation and certification, lack of infrastructure to deliver hydrogen to the final consumers and, in the case of emerging economies, very limited access to low-cost finance.”

So if factories like Verdagy’s do scale as planned, that could lead to a situation in which electrolyzer manufacturing capacity could double demand for the tech by 2030, according to a new report by Clean Energy Associates. 

Image credit: Clean Energy Associates

PEM electrolyzers also poised to scale-up

Ohmium and Electric Hydrogen, two other electrolyzer start-ups, also have big plans to scale up manufacturing in 2024. 

Both companies utilize a newer technology known as proton exchange membrane (PEM) electrolysis, which is generally more expensive and technically complex than traditional alkaline tech, but also more efficient, compact, and easier to integrate with renewables.

While their tech has core similarities, one of the main differences between the two companies is the size of their electrolyzers. Ohmium is betting on small-scale 300 kilowatt units, which are grouped together in blocks. For comparison, Verdagy’s modular units are about 67 times as big. And Electric Hydrogen’s units, which are 100 MW each, are over 300 times larger.

Rasool Aghatehrani, who leads marketing and strategy at Ohmium, says that starting small allows the company to reduce complexity and save on assembly and installation costs.

“Our philosophy has been, if we go with the modular smaller size, we will not lose anything because the efficiency is the same,” Aghatehrani said. “But we gain ease of installation, ease of manufacturing.” 

The smaller unit size could also be useful for applications like hydrogen fueling stations, he added. 

Ohmium is headquartered in California, but makes its electrolyzers in India to save on costs. It raised $250 million in its Series C round last year and, like Verdagy, plans to scale its factory to two GW of annual manufacturing capacity. While its units are small, some of its customers have big needs. For example last June, Ohmium signed a deal with India’s largest power company, NTPC, to provide up to 400 MW of electrolyzer capacity for a variety of green hydrogen projects from ammonia production to transportation.

Massachusetts-based Electric Hydrogen also inked a big deal last September, agreeing to supply its 100 MW unit to New Fortress Energy for use at a green hydrogen project in Texas. After Electric Hydrogen raised its $380 Series C round last October, the company became the industry’s first “unicorn”, with a valuation of over $1 billion. 

Electric Hydrogen plans to start producing units this year at its 1.2 GW facility in Massachusetts, and the company says customers have already reserved over 5 GW of its electrolyzers. However, it’s unclear how binding those agreements are. 

Securing customers is a problem for the clean hydrogen industry as a whole, as a BloombergNEF study found that a mere 10% of clean hydrogen capacity planned for 2030 has identified a potential buyer; of that portion, only 13% is locked up in binding offtake agreements. The rest of the pie is represented by more nebulous “pre-contractual agreements”, “memorandums of understanding,” and most inauspiciously, “unspecified.”

Whether customer demand materializes all comes down to economics, of course. Without subsidies, clean hydrogen costs about $5 per kilogram. The Department of Energy’s goal is to get that number down to $2 by 2026 and $1 by 2031, which would put it on relatively equal footing with hydrogen produced using fossil fuels. 

The tax credits will certainly go a long way toward making these targets a reality, but down the line, Verdagy’s Bammi hopes the support won’t even be necessary. 

“We do not intend to build a business that's dependent on subsidies,” he said. “We intend to be competitive with anyone globally, including Chinese manufacturers, over the long term. ”

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