The hydrogen market has beaten all industry forecasts for market adoption over the last 12 months—and this has changed the dynamic between producers and the markets as well as the conversations companies are having with investors, according to Ballard Power Systems CFO Tony Guglielmin.

During an analyst call, Guglielmin said this trend is putting stress on providers to find more capital as they try to keep feeding growth and meet forecast demand. “Three or four years ago the conversations with investors would have been about getting to breakeven and growing from there,” says Guglielmin. “Now adding capital has become critical.”

He estimates the industry needs to reduce costs by more than two-thirds to continue to attract investment and that hydrogen providers need to make a massive investment in R&D to make that happen as fast as possible. Ballard expects to double its spending on product development over the next 12 months.

Cost reduction

The cost of hydrogen is currently around $10-12/kg. Guglielmin suggests that figure needs to drop below $5 to be cost-competitive. This is a major cut, but Ballard Power Systems’ CFO notes that progress is being made. “We are working with Nel Hydrogen Norway, supplying a bus consortium in Europe with a relatively small programme of 1,000 buses,” he told the analysts. “Nell is pricing hydrogen into that consortium in the €6 ($7.29) range, so even today we are seeing the cost of green hydrogen coming down.”

“Based on industry reports, there is about $130bn in annual revenue opportunity in engines alone for bus, truck, rail and marine” Guglielmin

Based on this, Guglielmin calculates costs per kilogram—including delivery and storage—could fall as low as $3.50 in a relatively short space of time. However, the hydrogen industry has not historically been an easy sell to investors, and he admitted there is still a lot of educational work to be done.

“We are talking 2025-30 before we see a real ramp up in revenue and the conversations with most investors today are about stepping back and understanding the addressable market,” he said on the call, organised by research and consulting firm Webber Research. “It is a pretty rudimentary way of doing some bottom-up math—but based on industry reports there is about $130bn in annual revenue opportunity in engines alone for bus, truck, rail and marine.”

Another critical area for attracting capital, according to Guglielmin, is through joint ventures. In 2018, Ballard committed $75mn in a joint venture with Chinese power company Weichai, for which there are two elements.

Firstly, the JV undertakes the assembly of Ballard-designed stacks and modules for the Chinese market in buses, trucks and forklifts. Ballard sells its intellectual property into the joint venture, which it records as product revenue.

Secondly, the company has completed a $90mn technology transfer arrangement with the joint venture. As part of that agreement, Ballard is designing six new engines exclusively for the Chinese market.

Guglielmin told analysts that the company is looking for similar types of investment in Europe in 2021.

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Author: Paul Golden