🌏 The hard truth about hydrogen #210

Happy Monday!

Happy birthday to the now two-year-old Inflation Reduction Act! Let’s hope it’s not totally terrible twos.

Last week, two major hydrogen projects announced cancellations — indicating that the much-hyped hydrogen sector is having to grapple with a tough economic reality.

In deals, $100m for EV fleet charging, $100m for solid sorbent carbon capture, and $71m for electric scooters.

In other news, the UK's biggest-ever grid investment, delays in US IRA-backed manufacturing projects, and the world's largest pumped hydro plant.

Plus, you might have noticed we’ve taken a small summer break this month from our regular Friday newsletter. We'll be back in your inbox this Friday with a special feature on the future of the Inflation Reduction Act. (Sightline Climate clients already have the report, and can access it here).

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Hydrogen hype meets reality

This week, two major hydrogen projects — the Prairie Horizon Hydrogen project in North Dakota and the FlagshipONE project in Sweden — were canceled, indicating that large-scale hydrogen initiatives might be running out of steam.

What happened?

Clean hydrogen has long been a climate tech darling, hailed as the key to unlock decarbonization goals, especially for heavy industry. (The DOE estimates that it can play a role in decreasing as much as 25% of all energy-related CO2 emissions.) But recently, the sector's race to scale has hit some roadblocks.

Last Friday, renewables giant Orsted announced it was pulling the plug on its FlagshipONE project, two years in. The green hydrogen-to-methanol plant was supposed to supply the shipping industry with a cleaner hydrogen-based fuel alternative, but Orsted said that the demand never materialized, citing a sluggish European green fuels market as the primary reason for its exit.

Meanwhile, in the US, the Prairie Horizon Hydrogen project was intended to be a flagship blue hydrogen and ammonia facility, part of the Heartland Hydrogen Hub (HH2H) in the Midwest. However, last Monday, Marathon Petroleum and TC Energy announced the decision to scrap the joint venture, with few details as to why, despite the fact that the $2bn project already had nearly a billion dollars in federal funding committed.

Why it matters

These cancellations reflect a starker reality: that hydrogen's economics aren't penciling out in the big picture.

Production disruptions. The cost of producing hydrogen depends upon the source, which varies across the H2 rainbow — from black and gray to blue and green. But it's been prohibitively expensive so far. While electrolyzer costs for green hydrogen have fallen, getting reliable renewable energy is hard. Blue hydrogen, reliant on carbon capture and storage, also faces technical challenges and its own energy needs.
Getting realistic about logistics. Being the smallest and lightest molecule, hydrogen is notoriously difficult (and thus, expensive) to store and transport. A recent paper found that the levelized cost of liquefied renewable H2 shipped from Australia to South Korea is about $30/kg today, five times more expensive than previously thought.
Offtake shakeups. The cost premium for renewable hydrogen pathways is still high: 50-75% higher for ammonia, 150% higher for methanol, and 30-40% higher for steel production compared to fossil-based options, per IRENA. Few buyers have been able to commit to this.

While the molecule has been billed as the “Swiss army knife” of climate solutions — with applications in energy storage, heat generation, power production, fertilizer, and more — to borrow an analogy, you can’t use a Swiss army knife to chop down a tree.

Global VC / Growth investment in the hydrogen sector ($bn)

Key takeaways

Cracking commodities is hard. At the end of the day, hydrogen is a commodity — and economics are the primary driver of adoption. If something is significantly more expensive than alternatives, it simply can’t keep up in the market.
Globally, it's a slow transition. Countries like Japan and South Korea, with limited natural gas resources, are investing heavily in hydrogen as part of their energy strategies, but in almost every use case, hydrogen is still more expensive than alternatives today, stalling the sector's progress.
Government incentives can only go so far. Even with strong government support, incentives ultimately haven’t been able to make or break the hydrogen market. Hydrogen isn’t an end product; it’s a means to an end — specifically, the end goal of a sustainable, low-carbon fuel. And betting big on only one technology in the energy transition could be putting putting too many eggs in one basket.
But different hydrogen technologies are still competing. There are some technologies, such as methane pyrolysis and geologic hydrogen, that might bring down production costs enough to make hydrogen the right solution for some applications. The hydrogen bubble might be deflating, but it hasn’t burst just yet.

Deals of the Week (8/12 - 8/18)

Late-Stage / Growth

🏭 Guidewheel, an San Francisco, CA-based manufacturing efficiency SaaS platform, raised $31m in Series B funding from Decarbonization Partners, Breakthrough, Ecolab, Greycroft, and Rethink Impact.

Early-Stage

⚡ Aalo Atomics, an Austin, TX-based small nuclear fission reactors developer, raised $27m in Series A funding from Fifty Years, Valor Equity Partners, Alumni Ventures, Harpoon Ventures, and Preston-Werner Ventures.

🏭 CruxOCM, a Calgary, Canada-based control automation solutions company, raised $17m in Series A funding from M12 (Microsoft's Venture Fund), Angular Ventures, Bullpen Capital, Cendana Capital, EIC Rose Rock, and other investors.

🚆 Intramotev, a St. Louis, MO-based self-propelled electric railcar developer, raised $14m in Series A funding from Alpaca VC, Flybridge Capital Partners, Advantage Capital, Aera VC, Band Venture Partners, and other investors.

⚡ Gaussion, a London, UK-based fast EV battery charging technology platform, raised $12m in Series A funding from Autotech Ventures, BGF, and the UCL Technology Fund.

🌱 Vapaus, an Espoo, Finland-based corporate mobility programs platform, raised $11m in Series A funding from Shift4Good, Superhero Capital, and Tesi.

🚗 FreshBus, a Hyderabad, India-based electric bus service provider, raised $10m in Series A funding from Maniv Mobility, Alteria Capital, Riverwalk Holdings, and Shell Ventures.

💨 Promethean Particles, a Nottingham, UK-based industrial-scale MOF platform, raised $10m in Series A funding from Aramco Ventures, Mercia Ventures, British Business Bank, Foresight Group, TSP Ventures, and other investors.

⚡ Kazam, a Mumbai, India-based EV charging management software provider, raised $8m in Series A funding from Vertex Ventures, Alteria Capital, and Avaana Capital.

🚢 DRIFT Energy, a Bath, UK-based high-performance sailing vessels for hydrogen production developer, raised $6m from Blue Action and Octopus Ventures.

🚆 Clearly, a London, UK-based mobility emission management platform, raised $4m in Seed funding from Nine Realms, Pace Ventures, Mobilion Ventures, Next Gear Ventures, and m1720 Ventures.

⚡ DeCarice, a Sydney, Australia-based hydrogen dual-fuel systems developer, raised an undisclosed amount of Pre-Seed funding from Investible.

Other

⚡ Voltera, a Palo Alto, CA-based EV fleet charging infrastructure provider, raised $100m in Debt funding from ING Capital and Investec.

💨 Svante, a Burnaby, Canada-based solid sorbent carbon capture technology developer, raised $100m in funding from Canada Growth Fund.

🛵 Ather Energy, a Bangalore Urban, India-based electric scooters platform, raised $71m in funding from National Investment and Infrastructure Fund (NIIF).

👕 Ambercycle, a Los Angeles, CA-based circular textiles platform, raised $10m in Project finance funding from Shinkong Synthetic Fibers Corporation.

⚒️ E3 Lithium, a Calgary, Canada-based lithium extraction from oilfields developer, raised $5m in Grant funding from Emissions Reduction Alberta (ERA).

♻️ AMCS, a Limerick, Ireland-based waste management software company, raised an undisclosed amount in funding from EQT.

✈️ JetZero, a Long Beach, CA-based blended wing body jet developer, raised an undisclosed amount in funding from Alaska Star Ventures.

Exits

⚡ GSE Solutions, a Columbia, MD-based simulation and engineering solutions provider, was acquired by Pelican Energy Partners for an undisclosed amount.

⚡ Sunverge, a San Francisco, CA-based integrated VPP software and energy storage system platform, was acquired by Budderfly for an undisclosed amount.

♻️ KJ Environment, a Seoul, South Korea-based waste treatment services provider, was acquired by EQT for an undisclosed amount.

⚡ SI Solutions, a Charlotte, NC-based critical infrastructure consultancy and engineering services, was acquired by MidOcean Partners for an undisclosed amount.

New Funds

Silva Capital, a Sydney, Australia-based investment firm, held a $53m first close for their carbon credits fund.

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In the News

The UK has approved its largest electricity grid investment in history, a $4.4bn project that will connect Scotland to Yorkshire via undersea cable, boosting offshore wind development and reducing grid congestion. It’s a positive signal for the High-Voltage Direct Current (HVDC) market in the UK, as this boosts long-distance transmission and grid flexibility.

A new FT investigation found that around 40% of major US manufacturing projects backed by investments from the IRA and CHIPS Act are facing delays, ranging from two months and several years. Companies say the delays are due to worsening market conditions, poor demand, and policy uncertainty in an election year.

China has completed the world's largest pumped hydro plant, a 3.6GW facility in Hebei Province. The plant, which started operations last week, is capable of storing and producing massive amounts of electricity that will help stabilize the grid as it looks to solve solar and wind intermittency issues.

In Egypt, Africa’s first carbon market is now active, offering a trading platform for carbon credits that could encourage climate-positive investments across the continent. The market will allow companies to buy and sell carbon credits, aiming to spur sustainable development and emissions reductions.

North Carolina regulators have approved Duke Energy's controversial green tariff plan, allowing large companies to purchase renewable energy directly from the utility. Critics argue that the program may favor larger corporations while smaller customers are left with fewer clean energy options, but supporters say it will accelerate the transition to renewable power.

The US will reportedly approve a global UN treaty to reduce plastic production, aligning with international efforts to combat plastic pollution and environmental harm, after previously signaling it would not join the agreement.

Rolls-Royce is exploring the sale of its Small Modular Reactor (SMR) business, a move that signals potential consolidation in the SMR sector amid a growing global focus on advanced nuclear energy solutions.

Big Tech companies like Amazon, Meta, and Google are attempting to influence a major rewrite of greenhouse gas accounting rules, with conflicting approaches that could affect the accuracy of their reported net-zero emissions.

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The DOE powers up with newly released resources for data centers.

A resilient strain of cocoa bean has survived a drought in Israel and its traits could help alleviate the global cocoa shortage.

Renowned climate change journalist David Wallace-Wells on how to save our food system before climate change cooks it.

The oldest whale in the world and AI.

How South Korea turns food trash into treasure.

The IRS meets the IRA, as Americans received $8bn in tax credits from home energy upgrades.

Move over, carbon offsets — carbon insets are here.

A Brazilian rancher has to pay up after satellites captured illegal deforestation in the Amazon

Electrify everything, they said.

Climate change is coming for your ketchup.

The biggest DAC facility in the US, Heimdal’s Bantam, is now up, while the DOE announced $52.5m in investments in the space.

Where are the rest of the carbon removal buyers?

Opportunities & Events

💡 GROW + TOGETHER Accelerator: Apply to express interest in the GROW + TOGETHER Accelerator, hosted by Urban Future Lab, by September 6th for targeted networking opportunities for hard tech startups and manufacturers, and priority program consideration.

📅 Decarb TechInvest: Register to attend Decarb TechInvest on September 10-11th for an opportunity to connect with series B+ investors and professionals working toward industrial decarbonization. Quote SIGHTLINE-25 for 25% off.

💡 Building Tech Lab: Apply for the inaugural cohort of the Buildings Tech Lab by September 20th to pilot your growth stage building decarbonization startup with the DOB and improve how it regulates construction and development throughout New York City’s five boroughs.

📅 Female Founders and Funders: RSVP to join Sophie for the third FFF rendition and a networking lunch with other women building and investing in climate tech on September 24th!

📅 Climate Beacon 2024: Register to attend Climate Beacon 2024 from October 16-18th for a chance to connect with sustainability leaders from corporate, municipal, institutional, and community sectors in the Northeast.