Go big or start small: Picking the right scale for green hydrogen

The push to get a global green hydrogen industry off the ground is heating up, but not everyone agrees on what the building blocks should look like.

Take the example of U.S.-based startups Electric Hydrogen and Ohmium. In the past week, both have announced major plans to ramp up their production of electrolyzers, the technology used to make ​“green” hydrogen, a power source that could be key to decarbonizing heavy industries such as steelmaking, chemicals production and shipping.

But one of these companies is taking a large-scale approach while the other is going smaller, as each bets on a different theory about what tactic will scale fastest and most cost-effectively, and attract the massive project financing eventually needed to grow production even larger.

The International Energy Agency forecasts the world will need enough carbon-free hydrogen to meet 10 percent of global energy consumption by 2050. To hit that target, nearly 100 million metric tons of clean hydrogen production must be in place by decade’s end, and that will require an enormous scale-up of electrolyzer production.

For its part, Electric Hydrogen, which on Thursday announced plans to open its first factory in its home state of Massachusetts, is focused on producing a large-scale integrated electrolyzer facility at scales starting at 100 megawatts, or about five times larger than the biggest electrolysis facility in the world today. It aims to start producing a gigawatt per year of the electrolyzer stacks at the core of this plan by mid-2024, and it has raised more than $220 million so far to do that, including a $198 million round last year.

“We’re a deep decarbonization company,” said Electric Hydrogen CEO Raffi Garabedian. ​“The reason we exist is because you can’t decarbonize at small scale.” 

Meanwhile, Ohmium, a Silicon Valley–based electrolyzer startup that announced a $250 million venture capital investment last week, is betting on much smaller electrolyzer units. The new funding, added to about $70 million already raised, will help the company expand its India-based factory from 500 megawatts to 2 gigawatts of annual production capacity by the end of this year.

Ohmium’s 300-kilowatt Lotus electrolyzer units can fit into a typical garage and are designed as modular building blocks. That allows the company to offer customers as much or as little hydrogen production capacity as they need at the time and the locations they need it, said Ohmium CEO Arne Ballantine.

“The No. 1 thing I have to do is design a single product that can meet all these markets,” he said. ​“Otherwise, I’m going to completely fail in my mission to scale up.”

Electric Hydrogen’s go-big strategy and Ohmium’s start-small approach represent two divergent attempts to manage a fundamental uncertainty about how the green hydrogen industry will develop over the coming decade.

Piecing together the hydrogen puzzle

While most experts contend that clean hydrogen is needed to cut emissions from hard-to-decarbonize sectors, neither the demand from those sectors nor the supply of the fuel yet exists. Hydrogen made via electrolysis — a process that uses electricity to separate water into oxygen and hydrogen — makes up only a tiny fraction of a global production capacity that’s otherwise almost entirely made using fossil fuels.

But both sides of that equation are starting to change.

Government clean-energy mandates and corporate decarbonization commitments have driven a boom in clean hydrogen investments. In addition to Electric Hydrogen and Ohmium, gigawatts of electrolyzer production capacity have been announced by global corporations like U.S.-based Cummins, U.K.-based ITM Power, France-based McPhy, Norway-based NEL, U.S.-based Plug Power and Germany-based Siemens Energy and thyssenkrupp.

Only about half a gigawatt of electrolyzer production is now in operation globally, however, and the largest hydrogen-via-electrolysis facilities in the world top out at 20 megawatts. Industry and government analysis say the cost of green hydrogen production must fall by nearly fivefold to make it cost-competitive with its fossil-fuel-derived competition.

Government incentives such as the hydrogen production tax credits created by the Inflation Reduction Act and similar policies being developed in the European Union will help narrow this cost difference.

But to both scale up production and bring down costs will require a transformation from ​“a more cottage-scale industry, with non-advanced manufacturing techniques, into a modern manufacturing process,” said Patrick Molloy, a manager in the Climate-Aligned Industries program of nonprofit research organization RMI. (Canary Media is an independent affiliate of RMI.)

Decisions around the scale and modularity of electrolyzers will play a role in this modernization process, he said. ​“These 1-megawatt, 2-megawatt stacks deployed in a dispersed way — there are use cases where that will be valuable,” he said. But larger stacks to reach 100 megawatts or greater are ​“also going to be necessary.”

Go big or start small?

The systems being built by Electric Hydrogen and Ohmium aren’t totally different.

Both use proton exchange membrane (PEM) technologies, which are generally seen as being better suited for ramping up and down to match the availability of wind and solar energy compared to lower-cost alkaline electrolysis systems largely built by Chinese companies. Both have developed their own power electronics and power conversion systems to manage this dynamic electrical input, and both claim performance characteristics they say will offer significant advantages over the PEM systems now available.

Both also see room for startups to compete in what’s still a nascent market.

“There’s a hype-to-reality ratio of 10-to-1 in the hydrogen business,” Garabedian said. ​“China aside, we have a tool that tracks and maps all known electrolyzers on the planet — and we can count up about 500 megawatts of working electrolyzers in the world.”

Garabedian concedes that Electric Hydrogen’s plan to build integrated electrolysis facilities in the 100-megawatt range may seem ​“insane” in that context, given that just ​“one of them is 20 percent of the current [global] electrolyzer capacity. That’s a bit nutty, which may explain why nobody else is doing it the way we’re doing it.”

“But we’re skating to where the puck is going,” he added. Whether producing hydrogen to decarbonize steelmaking, to use as a feedstock for chemical or fertilizer production, or to make carbon-free shipping and aviation fuel, ​“each of these needs between 400 megawatts and a gigawatt of production” to match the scale of the industries involved, he said. ​“It’s hard to imagine doing it 1 megawatt at a time.”

Electric Hydrogen’s proposition is that its integrated system can provide the massive scale of production needed to decarbonize these major industries in a way that’s far less likely to suffer growing pains and unexpected costs than the methods currently used.

Today, large-scale electrolysis facilities are usually designed by engineering, procurement and construction firms using different pieces of technology from different companies in a bespoke, or ​“stick-built,” manner, he said. Electric Hydrogen, by contrast, has designed all the parts of its integrated plants and lined up U.S.-based contract manufacturers to produce the parts it isn’t manufacturing itself, according to Garabedian.

Meanwhile, Ohmium CEO Ballantine noted that his company’s electrolyzer modules, while small on a per-unit basis, are also being ordered in batches of hundreds of megawatts. The company’s publicly announced projects include a 343-megawatt order from Mexico-based ammonia producer Tarafert and a 120-megawatt order from NovoHydrogen to provide hydrogen as a zero-carbon replacement fuel for a fossil-gas-fired power plant in New Jersey.

“We designed the product for large installations,” he said. Ohmium modules can be lined up or even stacked atop one another to increase capacity to desired scales. But electrolyzers aren’t like thermal power plants, which become more efficient at utilizing energy as they grow in size, he noted.

Instead, ​“It’s all about what’s most efficient for us to manufacture,” Ballantine said — and in his view, smaller is better. ​“When you create a product that’s modular, the cycle time for how you adjust your product is much shorter,” he said. ​“The more modular it is, the more iterations of testing you get. But you also find it’s much simpler to change.”

Electric Hydrogen also has longer-term plans to produce 25-megawatt electrolysis stacks and power electronics modules dubbed ​“HyperBlocks,” which can be used to construct even larger-scale production hubs than the 100-megawatt systems it plans to start with, Garabedian said.

But he questioned whether a system like Ohmium’s would be able to convince project financiers to back larger-scale deployments, even if successful at a smaller scale. 

“The question is, does that give you any actual confidence in building a 100-megawatt thing? And the answer is it really doesn’t, unless you don’t believe PEM electrolysis works and you want to see it work in your backyard,” Garabedian said. ​“The realities of the engineered plant are so vastly different between small-scale and large-scale. From a banker’s perspective, you haven’t really proven anything.”

To be fair, Electric Hydrogen will also need to find developers and financiers ​“willing to stick their necks out” to build its first large-scale integrated systems, Garabedian conceded.

“That’s part of what a startup like ours has to be innovative about,” he said. ​“The technical problem is one thing. The core business problem is another.” 

Molloy agreed that ​“the scale-versus-modularity issue is now a very real and live one” in the green hydrogen industry. But ultimately, there could be room for both configurations.

Some installations might aim to provide fuel for remote generators that don’t need a huge amount of hydrogen, he pointed out. But others will need to supply massive amounts to meet the scale of existing industrial processes.

“This is about choice of operational optimization of the projects you’re trying to build,” he said. It’s not that one is better than the other. It’s about what problem you’re trying to solve.”