VX News excerpts this panel from CoMotion LA entitled, Fueling the Future: The Role of Hydrogen in U.S. Transportation and Logistics, moderated by LA Times' Russ Mitchell, featuring panelists, Angelina Galiteva, CEO, ARCHES; Mike Galvin, Director of Waterfront/Commercial Real Estate, Port of LA; Rahul Gupta, Global Executive Strategy Officer, Movin' On; and Patrick Noble, Sr. Engineering Manager, Modern Hydrogen, elaborating on the current market and cost drivers for clean hydrogen fuel and infrastructure and ARCHES' role in accelerating California's hydrogen ecosytem.
Russ Mitchell: Talk about what you see as the major challenges to developing hydrogen and getting it into the marketplace eventually at affordable rates, and what each of your organizations is doing to help solve that challenge?
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Mike Galvin: You're trying to displace a fuel that's 150 years in the making, and that is extremely resilient; that the whole economy is built against, and that is relatively inexpensive.
And so, you have to be realistic when you're doing that. It's not going to happen overnight. It's going to take some time to be able to catch up to that fuel. And initially it's not going to cost $1 a kilogram. It's going to cost a lot more than that.
Some of what we've experienced in the last five years is expectations that are aspirational but not realistic. And so, we need to get to a realistic point so that producers understand where they can meet the market, and that users can understand that it's not going to be a quarter the cost of diesel, because that's not realistic now, and I don't know when it will be.
But if we can go into it with the realistic focus point that it's going to take some time, we need to address very specific market issues right now, which we were just discussing before this, which is the middle of the market. We have a lot of different pieces of demand. There's demand in on the marine shipping side. There's demand in harbor craft. There's demand for locomotives, there's demand for heavy duty trucks and cargo handling equipment. All these little pieces, though, if not aggregated correctly, cannot build a market, because you can't send all those people out into the marketplace and expect them to fend for themselves and find a reasonable priced molecule, it's not going to happen.
So, that's why opportunities like the hubs and ARCHES can start to aggregate that market and help out with that. Because we're asking our tenants at the Port of LA to take on new equipment, and that equipment is heavily funded by grants. But if you can't guarantee a supply and guarantee a reasonable price, which is probably like in the $7 to $9 kilogram range at this point, then they're going to be resistant to even taking free equipment. So, we need to get over that. That middle market needs to be addressed, and I think there's already movement to make that happen, but that's critical.
It's really important that this conversation has continued. I was in this room last year talking about different things, but the conversation has advanced to what pieces of the marketplace need to be addressed now to get rid of this anxiety or insecurity over supply and cost. And I think we're going to get there, but that's the critical piece that we really need to attack in the next year.
Angelina Galiteva: Everybody’s right. We do need to build the market, and that's why ARCHES is dedicated to creating a marketplace and an ecosystem to ensure that we have hydrogen that is available, but that production and off take are balanced, and that we have a system for transporting that hydrogen where it is needed.
When we proposed the hub to the DOE, the vision was a holistic approach that's statewide and that encompasses the whole state in order to balance those three elements: production, off take and transportation of hydrogen where it's needed.
We needed to show that the state had credit worthy off takers so these producers that are building a production plant, they have a guaranteed uptake.
And of course, we focused on the most credit worthy of all: the ports, the power plants and the transit agencies that have mandates to decarbonize, mandates to purchase carbon-free equipment, and the ability to pay for it long term with an experience in power purchase contracts and purchasing contracts of fuels long term.
So, when we issued an RFP for the additional projects for ARCHES—and ARCHES has 37 of them that we selected that create that ecosystem—we got hundreds of proposals back. There is an ecosystem in California already, but it's patchwork. It's not coordinated, and it's very difficult for small individual players to be able to operate and balance those three elements individually. So, the hub can have the ability to be that aggregator and that ecosystem.
We got a proposal of over $56 billion, as I said, of potential projects, credit worthy projects in California that can be developed. Out of those, we selected the 37 that were proposed to the DOE, out of which we have large scale power plants in Downtown LA transitioning to 100% hydrogen. They'll have the ability to blend from 20% to 100% but that provides visibility, again, for production. Large scale off take is available. And if you supply the hydrogen, it will be purchased, and that plant can operate on it. Another plant in Northern California is doing the same thing.
Transit agencies. We have 15 transit agencies participating–already utilizing hydrogen. Some of them operating 50 busses. They're buying 30 additional busses. They have secured some hydrogen at a very high premium. And the only plea they have is, as you pointed out, Mike, 'Give us a secure supply of fuel with a fixed price for at least five years so we have visibility into the market.'
California has moved markets before. We've done it with renewables. Solar, 15-20 years ago and wind were the most expensive resources. So were batteries. We have had a curve reduction in price because of policies and because of smart market development to where renewables, coupled with storage, are now the cheapest resource on the grid.
We can do the same with hydrogen. We know what it takes. We need that transparency in policy, we need longevity in terms of all the frameworks, and we need consistency in terms of being able to supply and purchase that energy. And hydrogen could follow the same path.
I'm very, very optimistic and very bullish that we can make it happen. We know we have the producers. The producers are ready to create that hydrogen. They need to have the connection with the off takers. Not just one or two, because we need to produce at scale to bring that cost down, but to many.
And we can ensure that we can make that connectivity. We need to be able to transport that hydrogen with hydrogen fuel cell busses and trucks, and we can do that by creating an opportunity for market development in California and even production in California of those new technologies. Why not? Tesla was created here and grew here. We can have hydrogen fuel cell manufacturing, hydrogen ships, hydrogen heavy duty equipment and hydrogen busses and trucks produced in California, or at least assembled in California.
So, the opportunities are vast, the issue is how do we maintain that market? How do we keep the momentum and ensure that there isn't a boom and a bust, which is the biggest problem for renewable and any other technology as a matter of fact. So, we need to continue, and we need to make sure that people are aware of the potential, the momentum, the opportunities, and seize it, because without hydrogen, without the clean molecules, we cannot achieve our climate goals of decarbonizing the economy across the board. We can decarbonize shipping. We can decarbonize aviation, steel, heavy duty, industry, or anything else. We need that fuel, and we need the molecule.
Patrick Noble: We talked a lot about cost. What do you see as the biggest cost drivers for hydrogen right now, from your perspective?
Angelina Galiteva: Speculation and shortage. The price went from about $12 a kilogram to $36 a kilogram, and it's holding steady over there. So, we need more supply. We need more diversity of supply, and we need a pathway for more fueling and opportunities for offtake to drive that price down again. But we need competition.
Mike Galvin: That's right there's the market right now, especially in southern California, is set up to feed the refining industry, and there's very little excess. And so as you enter new participants in the marketplace, whether it be passenger cars or our own, and they're only looking for maybe 200 kilograms a day, it's very hard to get that off of the base load of what's being produced. And so that is being priced at a huge premium, because there's so many little pieces pulling at that.
The more producers that we have to create a more consistent and competitive market, and we need incentives to get there, because we're, like I said, competing with this incumbent fuel that has all kinds of historical amenities to get them where they want to go.
So, we definitely need that. We need all the help possible in all these different sectors to be able to reduce that price over time. But be realistic, it's going to be more than diesel for a period of time, but eventually, you can probably get to parity.
Patrick Noble: From a technology perspective, I was curious how far from the technology entitlement we are. It's sounds like we're pretty far. It's all market driven right now,
Angelina Galiteva: But with the steep opportunity for price reductions at a very accelerated pace.
Rahul Gupta: I would think that when you're talking about fragmentation and you're talking about a well-developed system for diesel and for fuel, there's a combination of factors at play here.
We're talking about California, but when you start looking at the other hubs, the question becomes, how do you actually tie this together? Because in a market that's focused on supply and demand, you need to make sure that the supply goes to where it's needed, because that will try effectively the price parity. So the levelized cost of the hydrogen kilogram needs to be reflected. It's right now regional.
I think you need to go to the national level and to say, can we create that economy? Because then you're going to get the scale that you need to get to that where the price per kilogram is competitive.
Angelina Galiteva: I was just going to say, we can get there. We can get there by, California again, fourth largest economy. We drive markets. We can drive a market. We have the offtake. We need the production. We need to scale the production.
We're already talking with the Pacific Northwest hub in terms of integrating the I5 corridor all the way up to Canada, and we're talking to Texas to have a corridor from Houston to LA, aptly named Hy- LA, which would be great.
So, the opportunities are there, the desire is there. We need to scale production and the end uses and create a liquid market for a liquid commodity.
Again, as fast as we can. The hydrogen hubs have to reach their goals by 2032, which means we need to build the projects, we need to drive the price down and we need to scale. That's not a lot of time for major infrastructure projects, which means we need to move really fast.