SYNTHESIS
Sometimes a very extensive amount of readings can be boiled down to a very FEW crisp data points.
A Few datapoints to highlight a clear direction
WATCH 📺 the link HERE
Sometimes a very extensive amount of readings can be boiled down to a very FEW crisp data points.
Today we are going to do an intro on Thyssenkrupp Nucera, a company specialized in electrolysers.
Electrolysers depend ultimately on the cost of renewable electricity
Capacity additions of renewable energy versus non-renewable
The cost of Photovoltaic
This is the wind and battery cost
Now let’s dig a bit into the expected demand for Hydrogen coming from zero fuel costs (wind and solar) and zero variable costs (solar) or very small variable costs (wind)
The expectation of growth is large but varies widely.
The capacity increase is expected to be large.
But it makes perfect sense given the plunging costs of electricity of both wind
And of solar
As a result the expansion of power capacity has been increasing massively on renewables to the detriment of fossil fuels.
Now where could be the first place where electricity price would plunge in Europe?
Spain. Due to renewable saturation.
Below is a schematic representation of Spain merit order day ahead pricing of power.
As you can see if there is not much renewable produced the price would clear at the CCGT price or worse at the peaker price.
But renewable capacity is expected to be at 80% of total capacity by 2030
Then what happens is that what you see from time to time which are negative prices when there is a massive amount of sun in Spain, and that happens only rarely today. With capacity saturation that could happen quite often. And then that is a price you prepaid because Solar is upfront. The investment is in fact recouped.
Then the price of electricity plunges and you get this plunge of prices
Some people have been arguing that hydrolyser do not plunge in cost as fast as Solar or wind with scale.
It is true and very false at the same time.
It is true if the cost of electricity is constant.
But the cost of hydrogen benefits from TWO compounding effect.
a) from the cost of electricity itself
b) that is compounded by the lower cost of manufacturing of the electrolyser
So you read here and there some dooom and gloom “look the costs are only falling 12% with a doubling of capacity”
Well they forget to compound the lower cost of electricity to get the total decrease in the cost of hydrogen per kilo.
But then why is wind likely to be the first to reach economical green hydrogen first?
Wind has a higher capacity factor and requires less storage costs of energy.
The profitability of an electrolyser depends on the amount of time it is used. Because the cost of Capex is the same but if it is used only a few hours per day it is a waste.
Why is Thyssenkrupp well positioned in Andalucia?
Well it has both lots of sun and lots of wind. It has both high capacity onshore wind that typically rises in late afternoon and overnight while sun peaks in the middle of the day, so the electrolyser could run 14-18h per day.
Morocco is the holy grail because it has both too but even higher on both, but it will come later.
So in 2-3 we are likely to see interesting costs of green hydrogen achieved by Thyssenkrupp Nucera.
And if you think it’s some sort of European crazy thing, all countries are in a race on that and the US and the Administration of Mr. TRUMP is giving very generous subsidies per kilogram of green hydrogen.
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BTW you might have noted that offshore wind is expected to be multipled by 7X between 2023 and 2030. We issued a recommendation on Orsted when the stock was depressed in connection with the rights issuance.
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About the author
Geoffrey provides unique insights. As DM and EM start to switch places in fiscal dominance regimes, his experience from a firm that traded EM bonds in the early 2000s will prove crucial. He is also versed in pre-FX as reserve monetary systems ( prior to 1922) and it will prove handy to understand local ccy trading, and its impact in FX, bonds, PM and currencies.
Former portfolio manager of 15 years at York Asset Management, a US and UK based firm specialized in Global Risk Arbitrage & Special Situations, Geoffrey is now CEO of DocuTalk, a NY-based software company that pioneered a new visual format to interactively present documents in video format using patented technology (and featured in the ’30 year anniversary’ edition of the Investor Relations Magazine New York).
