For those who lived through the tech bubble of the late 1990s, the renewed enthusiasm for all things hydrogen has likely brought a sense of déjà vu.
Two decades after fuel cell mania sent shares of companies such as Vancouver-based Ballard Power Systems Inc. soaring – only to crash when the technology failed to live up to its promise for commercialization – investors are betting that the time has finally come for the universe’s most abundant element to play an important role in tackling climate change.
“It really is a case that 20 years ago hydrogen looked interesting but was ahead of the time,” said John Bereznicki, an analyst with Canaccord Genuity in Calgary. “The political will to decarbonize has evolved.”
Canada’s high hydrogen hopes
In December, the federal government released its hydrogen strategy – an ambitious vision for Canada’s low-carbon future that foresees clean hydrogen providing 30 per cent of the country’s energy needs by 2050. That’s the target year the Trudeau government has set for Canada to meet its goal of achieving net-zero emissions.
Hydrogen is already widely used in industries to refine petroleum, process metals and produce fertilizer, though the source of that hydrogen is far from clean. Known as grey hydrogen, most is produced by burning natural gas, which emits carbon dioxide into the atmosphere.
“Hydrogen only makes sense if it is low- or zero-carbon energy source,” said Simon Dyer, deputy executive director of the Pembina Institute. “Hydrogen by itself is not a climate solution, unless you can deal with the emissions associated with its production.”
Enter blue and green hydrogen. When emissions from the production of grey hydrogen are captured and stored underground, the result is hydrogen classified as blue. Meanwhile, green hydrogen results when renewable sources such as wind or solar are used in its production.
When Seamus O’Regan, Canada’s Minister of Natural Resources, released the government’s hydrogen strategy, he said low-carbon and zero-emission hydrogen has the potential to reduce Canada’s annual greenhouse gas emissions by up to 45 million metric tonnes each year by 2030 and create up to 350,000 new jobs by 2050.
Mr. Bereznicki sees at least two challenges the sector must first overcome: One is the cost gap between blue hydrogen and conventional fossil fuels. Green hydrogen is even costlier to produce, though some forecasts see those gaps closing as technologies advance. The other is the infrastructure to store and transport hydrogen, which will also require immense investment since existing natural gas pipelines aren’t able to move hydrogen easily.
All of this means the industry will likely be heavily reliant on government support to “level the playing field,” Mr. Bereznicki said.
It’s also something Mr. Dyer is wary of. “It’s the government’s role to set the strong signals around carbon pricing and clean fuel standards and some of those preliminary investments,” he said. “After that, it’s up to the hydrogen industry to demonstrate they can compete delivering low-cost, low-carbon fuel.”
Canadian companies embracing clean hydrogen
Despite these challenges, the industry is pushing ahead. Canaccord recently released a white paper analyzing the opportunities clean hydrogen might offer Canadian companies.
One area the report looked at was the potential for Western Canadian energy companies, which have been struggling with low oil demand and prices, to benefit from a ramp-up in the production of blue hydrogen. Still, Canaccord notes these are “early days” for companies that might one day capitalize on the storage and transportation of clean hydrogen.
In November, Dean Setoguchi, chief executive officer of Keyera Corp., a Calgary-based energy handling and processing company, told investors on a conference call the company is “very well positioned to provide and create that hydrogen if the demand is there.” He pointed to the central Alberta area, where Keyera’s gas plants are located, as potential reservoirs for storing large amounts of carbon.
Another company the Canaccord report highlighted is Montreal-based Xebec Adsorption Inc., which makes on-site gas generation systems for industrial customers. In December, the company expanded its hydrogen offering through the $160-million purchase of Netherlands-based HyGear, which Xebec said will allow it to provide “commercially viable green hydrogen.”
Xebec CEO Kurt Sorschak said he’s “broadly supportive” of Ottawa’s hydrogen plan. Still, he’s wary of any rush to invest in large-scale clean hydrogen projects because of how difficult and costly it will be to build pipeline infrastructure to move hydrogen.
“Everybody is rushing to announce projects worldwide but it’s challenging to see how it will get to market,” he said. “I’m a very big proponent of actually being able to make money.”
When it comes to the adoption of clean hydrogen, Mr. Bereznicki said the “low-lying fruit” involves shifting existing industrial consumers of grey hydrogen to cleaner varieties.
Longer term, Mr. Bereznicki said hydrogen is best suited to commercial and public transportation sectors, where it is used to power fuel cell vehicles that emit only water and heat instead of carbon.
Hydrogen options for investors
The domestic landscape for publicly traded fuel cell companies is set to expand. Last week, Burnaby, B.C.-based Loop Energy Inc., which produces fuel cell systems for commercial transportation, went public on the Toronto Stock Exchange at a price of $16 a share to raise about $100-million.
Then, of course, there’s Ballard. Since the start of 2020, the company’s share price has soared 275 per cent to around $38, though the shares have shed a quarter of their value since reaching just under $54 in early February.
The resurgence of interest in hydrogen as a clean fuel is vindication for the company’s “remarkably durable 40-year vision to decarbonize mobilities,” said Randy MacEwan, Ballard’s CEO since 2014. “It’s been a long and challenging journey with successes and setbacks along the way.”
Whereas Ballard previously focused on the passenger vehicle market, today its fuel cell technology powers transit busses, freight trucks and marine vessels, which are easier to build refuelling infrastructure for than passenger vehicles.
Mr. MacEwan welcomed Ottawa’s hydrogen strategy but said the details of how it will be implemented will be important. He hopes to see an “ambitious” program that supports 10,000 fuel cell busses and commercial trucks by 2030, by adopting zero-emission bus and truck standards and offering incentives for companies to convert their vehicle fleets to hydrogen.
“Speed matters here because other jurisdictions are pulling ahead of Canada, so we need to adopt clear policies fast,” Mr. MacEwan said. “The 2020s will be the decade of hydrogen, but the obvious question is will it be a decade for hydrogen in Canada.”