420. Why the Opportunity in Energy may be as Large as AI, The Path to Decarbonization, and Fundraising Advice for DeepTech Startups (Raffi Garabedian)

420. Why the Opportunity in Energy may be as Large as AI, The Path to Decarbonization, and Fundraising Advice for DeepTech Startups (Raffi Garabedian)

Raffi Garabedian of Electric Hydrogen joins Nate to discuss Why the Opportunity in Energy may be as Large as AI, The Path to Decarbonization, and Fundraising Advice for DeepTech Startups. In this episode we cover:

  • Green Hydrogen and Its Potential for Clean Energy
  • Energy Transition and Business Opportunities in a Changing World
  • Green Hydrogen Applications and Timeline for Ammonia Transformation
  • Decarbonization in Various Industries
  • Green Hydrogen Infrastructure Development
  • Green Hydrogen Viability and Political Support

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Transcribed with AI:

Our guest today is Raffi Garabedian, the co-founder and CEO of Electric Hydrogen, a startup pioneering the transition to clean energy by making green hydrogen economically viable. The company has raised more than $600M from prominent investors in energy and is valued well over a billion dollars. Raffi has an extensive background in hard industries having previously served as the CTO of First Solar and also the founder of MicroMachines, a company that he sold to Kavlico. Raffi, welcome to the show! Thanks.
Good to be here.
You know, where I want to start today is with so much attention being dedicated toward AI, this is such a great opportunity to hear about an industry that some believe could yield equally large and perhaps more important companies over the next couple of decades. First, I’m curious if you agree with that sentiment. And secondly, if you could frame the opportunity and energy as you see it.
Yeah, we were just chatting about b2b software companies taking up all the air in the room a minute ago, and AI is another one, right, taken up a lot of hair and in the room. But look, I mean, there are a lot of technologies and ideas that are that are important and are going to have a huge impact on the world as we know it AI is one of them. And so it’s it’s rightfully taking up a lot of mine chair and air in the room. But there’s a lot more going on we are we are going through a global retooling of the industrial infrastructure that our world is built upon, in a human kind of modern societies built upon. And it’s driven not just by changes in technology, but by the will to alter the course of climate change. So you know, save climate change, and our understanding that it’s driven by human action, there’s really no reason to move away from fossil resources as our primary source of energy amongst others, including nuclear and whatnot. But you know, we’ve come to that realisation. It’s taken decades, starting with the early environmental movement, but ultimately, gaining traction in the scientific community and now in the public mind. And this is a global phenomenon, right? I started in solar in 2008. And, you know, I used to joke, it was just Birkenstocks and tree huggers in Germany, who wanted to see this happen. Fast forward to now in the 2020s. And it’s unstoppable. If you ask my children’s generation, they’re in college. Now. There’s no question. There’s no question that this transformation has to happen. So now that there’s political will, that means there’s also economic will being put behind it, and the result is that we’re gradually slowly? Well, it seems slow. It’s actually a huge problem. And it’s gonna take time, but we’re slowly retooling again, all of the underpinning of of industrial society, and the feedstock for all of industry. For every everything in the physical world, we do that feedstock is energy. So energy is going to change. And with that comes tremendous business opportunity as well. Now, we’re other sectors that are going to be hugely important, you know, biotech is, is I think, emerging as a massively important sector, we could go on and on AI is one of them. But it’s not either, or energy is going to be a big deal it already is. We just don’t necessarily focus on it. Because it’s stable for 100 years, right. It’s old industry, and it just runs. But now we’re going through this transformation. And the transformation is it’s gargantuan, it’s hard to wrap your head around how big this industry is,
would you say? So? You’ve been in the industry since 2008? You said, would you say that there’s the most momentum around this transformation over the past 15 years that you’ve ever seen? Or how would you compare, specifically the last four months relative to the past 15 years? In terms of how like the momentum that you’re seeing specifically on the commercial side?
Yeah. You know, the Gartner Hype Cycle, you know, the classic like, hype cycle curve that people talk about. We’ve been in happier moments in the energy transition. I think what we’re seeing now is true momentum, if you will, people around the world, you know, ranging from the political sphere all the way to execution. And operationalizing things are realising that, yeah, we want to go down this path. It’s real, we’re going to do it, but it’s also hard. And, you know, it’s a big heavy lift. So yes, there’s momentum, but there are also a lot of challenges along the way. And I think we’re, we’re in we’re wrapping our heads around that. Yeah.
I want to talk about the dichotomy between a period that feels hype versus that of that has real momentum because whether it’s energy or AI, AR VR, you know, picking industry there, there have been a number of head fakes. Whether we’re talking about any of those respective technologies, as an entrepreneur, how would you delineate between the two between something that feels like a head fake and something that has true momentum? Or how would you advise other founders to be wary that, hey, this is hype? This isn’t real momentum?
Yeah, interesting question. I mean, it depends on the nature of company that you want to build. If you’re trying to get in and out and make a buck on something, then I don’t think it matters much. And your question is all that relevant, because you kind of take a short term view, and you ride the wave of the hype, as far as you can. And the whole trick there is, is is predicting the timing, getting the timing right, right, get in and get out before you fall off the edge of that, that peak of AI, that’s not the kind of thing that I’ve ever been interested in, I kind of take a more fundamental view, a more kind of long term view of, of what a technology and a company can and should be doing. And when you take that longer term view, you don’t worry so much about where you are in the hype cycle, you worry about longer term processes. So is the foundation for what you’re trying to do is a sustainable, you know, with that you have to think really hard about how long is it going to take to get there, because the startup can’t sit around and wait in the background for 20 years for an industry to emerge, right, you have to actually be able to control the outcome and time it properly. And you know what we’re doing today and electric hydrogen, my current company, we wouldn’t have started this company seven years ago. So to your point, there wasn’t enough momentum, there wasn’t enough visibility to the emergence of a market in this domain of green hydrogen, seven 810 years ago to really have done this, you know, how do you how do you figure that? I think, again, it’s it’s, it’s keeping your eyes on the fundamentals. Yeah, ignore the noise, try to ignore the noise.
A lot of feel like it, both investors and founders struggled to ignore the noise and end up partaking in it, which only breeds more and more noise. But you mentioned electric,
I take the same approach with my news consumption. You know, I don’t listen to the news or read anything on a daily basis, I try to focus my energies or my intake on things like you know, the economist is a great one, right? Yeah. Once a week, it’s a great summary of what’s going on. Agreed. Agree.
So you mentioned electric hydrogen, can you we’re gonna do a deeper dive later on in the episode into the business, how you position yourselves, etc. But can you give us the quick 10 to 22nd overview of the business and also touch on the technology that you’re using, which you also mentioned briefly? Yeah.
So at electric hydrogen, we make technology to transform renewable energy into hydrogen, which is itself an energy carrier, but also a feedstock molecule and into lots of chemical processes that are important in our world. It’s not a primary energy technology, it’s a it’s a transformation, we started the company because of the well really based on the realisation that renewable energy is now extremely cheap to produce. So we’re talking, you know, different parts of the world you can produce, or you can build renewable power plants that produce electricity at $20 a megawatt hour. And that that’s, you know, to put that in context, here in California, my retail rate is $240 a megawatt hour right, but 20 megawatt hours $20 A megawatt hour is incredibly inexpensive, and it opens the door to utilising that electricity for things other than high value uses of electricity itself. Right. Not everything in the world can be electrified when when you look at both wind and solar power and the constraint to their growth to their further adoption. Both technologies are primarily constrained by grid integration, how much variable renewable energy can you throw onto a particular point on the grid before the grid gets stressed. And when people say the grid gets stressed, that’s because these things happen when they happen, the sun comes up, the sun goes down, the wind blows, the wind doesn’t blow up. And that’s not synchronised with the use of power. So to balance that you either need a lot of batteries, which are super expensive, or you need to ramp up and down turbans, or thermal power plants based on fossil fuels so so there’s a natural limit today to how much renewable power can be put onto the grid. And that’s constraining the growth of adoption. The the whole motivation for electric hydrogen is to provide another outlet for decarbonisation via renewable energy via solar and wind. And that outlet is, is a decoupling of those power sources from the electric system. So hydrogen provides that decoupling it allows us to move energy in a molecular form, which is how we move most energy today, or the vast majority of energy in the world that’s consumed in the world. He has moved in pipelines on tankers from one place to another and ultimately part of that is converted to electricity, but actually the majority is used thermally As a chemical feedstock, so hydrogen provides that bridge between the renewable energy world and that other much bigger world of molecular energy and feedstock. That’s why we started the company is to perform that transformation in a cost effective way the technology is called electrolysis. electrolysis is just a means of electric chemically splitting water, h2o into oxygen and hydrogen. The hydrogen is the energy carrying piece of it, the oxygen just goes back out into the air and you know, when you utilise the hydrogen, burn it or whatever, you get the energy back. Sometimes people think making green hydrogen is inefficient because it uses a lot of energy. That’s not correct. It actually can be very efficient is and it does use a lot of energy. But that energy is transformed. We in particular, have developed a electrolysis technology that dramatically by many, many, backed by many times reduces the capital cost of building large electrolyzer plants. And that low capital cost allows us to make hydrogen economically, economically is important, because in the world of energy and infrastructure, really, economics drives adoption, people are only willing to pay a little more for the clean stuff. And you know, you don’t get to ride on features and coolness factor to sell your product. It’s not an electric car that goes really fast. I love those. But you know, it’s it’s an energy product. So it’s got to be economically viable. So that’s really what we’re focused on.
Yeah. And we’re gonna use the term green hydrogen quite a bit today. So for those wondering what that term means, specifically, can you explain that to them? Yeah, so
hydrogen is a molecule we use a lot of it today, we use it to make fertiliser. So all of the most of the fertiliser that’s used globally is derived from ammonia, which is synthetically produced from hydrogen and nitrogen from the air. The hydrogen comes from methane from natural gas, which is CH four. And there’s a process to extract the hydrogen from the methane and utilise it for making ammonia the other half of global hydrogen consumption today is in chemical processes like refining, petrochemical refining, primarily, but also the production of things like methanol and other things. So hydrogen is just that it’s a chemical it’s a molecule, it’s a gas, it can be produced from methane, it can also be produced from water if the source of the electricity used in an electrolyzer is green electricity, green meaning not coming from fossil, our plants, then the resulting hydrogen from electrolysis is called Green hydrogen. And it’s just a shorthand way of saying that carbon isn’t being emitted co2 is not being emitted in the process of producing hydrogen got
it? In prior to proceeding with one other thing I want to touch on? Because I’m sure those listening have read quite a bit about nuclear fusion and that nuclear fusion is the future of energy. I’m curious to get your thoughts quickly on nuclear fusion. And why green hydrogen is superior, at least in the short term versus fusion? Yeah,
it’s let me reframe it a little bit, your question. So there’s primary energy and then there’s uses of energy, primary energy would include nuclear fusion, nuclear fission, hydropower, wind, solar, and of course, the big one, coal and natural gas, right, that’s, that’s how you get energy. Now what we’re doing at electric hydrogen is, is building the stuff that transforms that energy into the molecular form that can then you can do other things with so that’s it’s a little bit apples and oranges, like, you know, we could run our electrolyzers and would love to run a political electric off of electricity that comes from a nuclear fusion power plant. And having said that, were probably decades away, if it ever materialises from nuclear fusion power plants that are cost effective relative to solar and wind. So you know, strategically electric hydrogen were really laser focused on using what we have today, what’s in our, in our sights for the next decade or two, and what we know how to build that’s green and sustainable and scalable. Our wind and solar power plants, hydro is very, very hard to scale up because of environmental issues. So you know, kind of solar and wind are it and, and so our focus is, is on matching our electrolyzer technology to the requirements of following solar and wind. Yeah.
I also want to get your opinion on the critics of green hydrogen I was reading this was probably a month ago, I believe Elon Musk dismissed green hydrogen and iconic fashion, calling it the most dumb thing. What is the most commonly cited argument against the technology? Or what do you feel that critics are missing in their analysis of it? Well,
Elon runs a electric car company. And so he kind of has a horse in this race. By the way, I kind of agree with him. Like, for example, here in the United States, I don’t really think hydrogen powered land duty vehicles make a lot of sense at all. I’m not sure I’d call them the dumbest thing I’ve ever heard of. But But battery electric vehicles are awesome, and they’re scalable. And I think they’re the right thing to pursue. Now, that’s not true everywhere in the world. You you go all the way to our friends in Japan, Japan does not have kind of native energy resources. Their electric system is driven off of well off of imported resources like LNG, it’s very, very expensive to generate electricity in Japan. It’s either coal or LNG and a dwindling nuclear fleet. So electrifying the automotive sector in Japan, maybe not so smart, right? Because not only is it inefficient, it’s also high emissions. And and it requires expanding the system that’s already under stress, importing green hydrogen or derivative chemicals, like from the green hydrogen, that can be used to power hydrogen electric vehicles, for example, actually makes a lot of sense in the Japanese context. So you know, sound bites are great. But the world is actually a very nuanced place, particularly when you talk about energy. And so it’s important to think a little more deeply about these things. Yeah.
What are the immediate applications in your mind in the United States for green hydrogen, so if electric vehicles make more sense, given the scalability, the infrastructure is already largely there, or at least it’s being developed at a pretty rapid pace as this technology green hydrogen becomes more economically viable? What do you what do you first see the first industries or applications being affected?
Well, yeah, there’s there’s a funny thing in our industry. So hydrogen, like natural gas is a multi use molecule you can use it for basically, you can use it for almost anything you could use natural gas for, right, which is a lot of things. So so it’s a bit of a Swiss army knife in the energy world, again, like natural gas, except it doesn’t emit co2 in the process. Now, there are high value and low value applications. For Green hydrogen, the highest value application is as a chemical feedstock, which is how it’s used. Today. That’s how fossil derived hydrogen is used today. So decarbonizing the, the ammonia sector, the the agricultural fertiliser sector is the first place that we see widespread adoption happening, the switching costs are relatively low, because hydrogen is already used in those processes. And the hydrogen that’s currently used, though, is derived from a very cheap resource natural gas, that conversion of natural gas to hydrogen costs money. So the competitive benchmark for green hydrogen is actually easier to achieve than in the energy sector as a fuel, for example, to burn in a combustion turbine. So we do see a lot of activity in the ammonia sector. It’s a part of the economy people don’t even know about or think about. But you know, rough calculation globally, the conversion of ammonia production, fertiliser production from natural gas to green hydrogen would require about a terawatt of new electricity and electrolysis to be installed on terawatt. So that’s the same generating capacity as the entire United States electric system today, just to put it in perspective. So just that one little application is a massive global endeavour to decarbonize now, we also see a lot of interest commercial interest actually in building plants for methanol production, hydrogen as the primary energy bearing feedstock into methanol production, or Camhi. And methanol is a fuel of choice emerging fuel of choice for the shipping industry to replace bunker fuel, which is a huge dirty emitter, not only of co2, but also sulphur and other things. So that’s an interesting, emerging application. Aviation is another one. So sustainable aviation fuel requires hydrogen as a feedstock for its production. Aviation is really, really hard to decarbonize. So but there’s a lot of motivation to do it. So we’re seeing sustainable or SAF so called soft plants being developed which require green hydrogen, the list goes on a big one also is is primary steel production. So steel is produced today, using you know, kind of the oxygen blast furnace process been around for hundreds of years longer, I guess the alternative process, which is already used commercially, as well, for high quality steel production is called Well, I won’t get into the details, but there is an alternative process that utilises hydrogen instead of coal as both the energy source and the chemical reducing agent to pull the oxygen off of iron ore, which is iron oxide, thereby generating metallic iron, which is the purpose of the process. So that transformation is well people are building pilot plants and also the first full scale production plant in Europe already. And I think we’re going to see over the next few years, many more such projects being developed but all that together. It is a gargantuan opportunity. It’s a problem, but also an opportunity. Yeah,
it what is the associated timeline with the transformation of ammonia? you’re alluding to the fact that this is taking place already. But can you give us a semblance from the adoption? Or is it being quickly adopted is it’s still in the early innings? How early? Are we in this transformation? And how quickly do we expect this transformation to take place?
You know, the hydrogen industry is incredibly complicated from a business perspective. And ammonia is a great example of this. So I already mentioned it’s like, one of the highest value opportunities for green hydrogen, because the competitive benchmark of the hydrogen that’s currently being used is is already, you know, more expensive than then alternatives and other applications. So that’s great. On the other hand, the fertiliser industry doesn’t actually have any either legislated or intrinsic pool for decarbonisation. Right. And let me give you a counter example utilities power generating utilities in the US are under a lot of decarbonisation pressure both from their regulators and also from their consumers. Right, people don’t really know where the fertiliser for their food comes from. And so there’s not much pressure in that business to decarbonize. So you got companies like CF industries, or Koch Industries or whatnot, who own and operate these massive Haber, Bosch plants, big chemical plants to produce this stuff. And you know, they’re happy using the lowest cost input feedstocks, right? So the adoption cycle in ammonia is actually long. And not many people are eagerly moving towards decarbonisation, and adoption of green hydrogen, there are a few upstarts who want to transform that industry. And so there’s glimmers of hope. But the business model isn’t yet there. Right. Nor is the is the the legislative environment there to kind of force the issue if we want to decarbonize those sectors. So interestingly, there’s probably just as much interest in using green hydrogen for a much lower value application, which is burning it in a combustion turbine to make electricity again, right using basically as a long duration battery, not the most economic initial application, hard to be economic in that that use case, but relative to batteries, it’s pretty cheap. And and there’s a lot of pressure to decarbonize those sectors. So you know, when we look at the market, and its evolution, and and the kinds of customers that we we try to work with, we have to balance many, many factors. We have to balance the economics, but also the externalities. How much older is, in those sectors? Yeah,
you do for see additional legislation for seeing industries that, you know, are outside of the public eyes, such as ammonia, to adopt more clean solutions, such as green hydrogen? Or do you think that the only way for those industries that truly adopt will be reducing the cost basis of delivering green hydrogen, and they’re thereby increasing the bottom line for Koch Industries? Or pick? Pick your supplier?
Yeah. It’s tempting to give a US centric answer. Let me start with a more global answer, which is depends on where you are. Europe, for example, has a carbon market, right? So effectively, there’s a price on carbon in in Europe. And that drives every industry, that’s a carbon emitter to make economic choices that that kind of tilt towards decarbonisation. So Europe’s a different thing from a policy perspective than the US also the cost of natural gas, which is the source of hydrogen for fertiliser today is much, much higher in Europe and extremely volatile in Europe. You know, we saw that with Putin in the war. And there’s a lot of expectation that that volatility continues into the future. So there are multiple reasons in Europe, why adoption is faster. Now, in the US, we have this new law called the IRA, maybe your listeners are familiar with it, but it provides tax incentives, tax credits for a number of industries, green hydrogen production being one of them. And so that’s a major motivator that reduces the cost of production of green hydrogen, the effective cost of production, because of the tax credit. But on the other hand, there’s no price on carbon. There’s not really insight in the in the foreseeable future. And there’s no there’s no legislative or policy driven incentive to change in the ammonia industry. Could that happen in the future? Yeah, I think, you know, we’re getting wiser policymakers are looking deeper and deeper into industry, to identify the, you know, the opportunities and the right moves to make to incentivize this transition that we’re gonna go through, by and so, you know, clearly ammonia is a big emitter globally, and it’s going to Come into sight eventually.
Yeah, I want to talk about the business again in a moment. And I have one remaining question on on the topic of applications, because in order to deliver a green hydrogen to these applications that we’re talking about, oftentimes there needs to be infrastructure. So whether that’s using electric vehicles as an analogue charging stations for EVs, there are natural gas pipelines for delivering natural gas. How would you assess the infrastructure for green hydrogen? And what just talk to us about what needs to be true in order for green hydrogen, and the applications to reach their full potential, even if it’s able to be produced in an economically viable process?
Yeah, mate, perfect question. And the answer is a lot needs to happen a lot an awful lot. So the problem we’re trying to solve in the green hydrogen industry as a whole, which it’s an emerging industry, it’s not really an industry yet, it is massive, and it includes not only the production of the green hydrogen, but its transport and utilisation. And in many cases, both pipelines and storage facilities need to be developed and built, but also the end use facilities need to be built or transformed, retooled, one way or another to manage or accommodate the switch from fossil to green hydrogen, so an awful lot has to happen. And it’s a coordinated process. Well, orally coordinated, it’s an evolving process with with a whole lot of global players involved. If you just look in the US, for example, early green hydrogen projects are being built such that the electrolyzer is fairly proximal to the end use. So right now we’re we’re building a project with a customer in Texas, where the electrolyzer is sitting, close to a haber bosch ammonia production plant. And in that case, the infrastructure needs on the hydrogen side are minimal to zero, but we’re taking advantage of leveraging the existing power transmission infrastructure to get the renewable power to that facility. Right. So so we’re leaning heavy on the power side. Now, already mentioned, the power sector is constrained transmission is a big constraint grid, interconnection is a big constraint. So it’s actually hard to move large amounts of power into new applications. And it takes a long time to build our transmission, it’s very difficult to build for lots of reasons, both technical and political. So we’re gonna see in the early years of this industry’s evolution, projects, like I described being built, where the electrolysis is near the end use the power gets moved. But over time, when we go down the learning curve, and that hydrogen cost is coming into line, then we’ll see just a natural motivation to start building hydrogen pipelines, which are very much analogous to natural gas pipelines, they’re the same technology, the same thing effectively, we’ll see hydrogen pipelines being developed. And that will decouple the hydrogen production from the end use and allow a network of users and producers to interconnect that’s a decade long thing, right? It takes a decade or more to build out those kinds of networks. This is what happened in natural gas, we didn’t build a natural gas pipeline network around this country. And if you look at it, if you go to Google Maps, and or go to the internet and just search up us natural gas pipeline network, you’ll see this incredible maze of pipes all around the country, we built that because natural gas was found and was cheap, and people wanted it right, the same thing is going to happen in hydrogen when we know how to produce it. And that’s what we’re trying to do in electric hydrogen. You know how to produce it abundantly and cheaply. People on the other end want the product, then what’s called the midstream in the gas industry, this this pipeline network develops to transport the gas. Luckily, pipelines are much cheaper on a gradual move basis than wires are. And that’s an interesting fact that as an electrical engineer, it’s hard for me to
but but it’s true. Yeah, that’s interesting. It’s so earlier in the show, you mentioned that seven or eight years ago, it wouldn’t have been possible to find to found electric hydrogen, what has changed over the last seven, eight years, that is now enabling the business to exist and you know, specifically you’re making larger scale more economically viable. electrolyzers. But are there any derivative causes that are enablers that are now providing the opportunity for the business to exist?
For sure, the first fundamental shift or transfer enabler that’s happened is renewable power prices have come down to the range, that green hydrogen is now economically viable. I already mentioned that but I’m gonna give you some numbers. So each $10 a megawatt hour of electricity. Electricity is the effectively the feedstock for making green hydrogen each $10. A megawatt hour equates to about 60 cents a kilogramme of hydrogen called cost. So if your energy is $20 a megawatt hour, your hydrogen is a minimum of $1.20 a kilogramme plus the capital cost effect the cost of capital to build the equipment operated in your profit margin, so called grey hydrogen, which is just hydrogen made from natural gas today is cost around $1.50 to $1.70 a kilogramme, to give you the competitive benchmark, right, so decarbonisation forces aside, you’d have to be to be 100%. Economically, breakeven, you can’t be above $20 A megawatt hour electricity cost and still make green hydrogen work economically, if you go back 10 years ago, you know, power purchase agreement, prices in the renewable sector, probably 40 bucks a megawatt hour, you couldn’t make green hydrogen economically viable. But today, they’re cheap enough, because the technology is advanced. We’ve gotten much, much better at building big power plants, big renewable power plants, we’ve taken a lot of the cost out from those industries. Now it’s mild, that’s maybe the most fundamental thing that’s changed, that’s enabled green hydrogen to be a thing now. But you know, the other big shift, again, is is just the political forces at work, which result in policy, which is incenting, this transition much more broadly, this energy transition that we’re we’re experiencing and going through again, you know, 10 years ago, I was at first solar at the time. And you know, I can’t tell you how many times I felt like the company and the industry, the solar industry, were going through existential crises where we didn’t know if the industry would survive because policies were great one year and then people got squeamish because it was expensive and the policies were retracted and market would contract and, you know, Congo Congo, very, very hard industry now today, it’s actually stabilised. Well, we what we see is kind of this galvanised political will, you know, if you listen or read about cop and what’s being discussed globally, in terms of decarbonisation, it’s real now. Right. So that’s the other major thing that’s changed. Yeah.
Do you think there’s enough political support to facilitate the transformation to green hydrogen? Or how would you how would you assess the political landscape of what, what’s left that’s needed to be done there? Yeah, it’s
messy. It’s early days, different countries, different jurisdictions are trying different policies out, it’s going to come it’s going to go, people are going to make mistakes. And those mistakes are going to result in political backlash. We’ve seen this all play out in the renewable power sector. And I don’t see any reason why it plays out differently. In green hydrogen or anywhere else in the energy transition. Hopefully, we’re learning as a as a species as we go, and we make fewer and fewer mistakes. But But look, I mean, anybody working in energy has to be prepared for fits and starts and retrenching and downtimes. It’s going to be it’s going to be choppy. Yeah,
yeah. Can you shed some light on where the business is at today? Electric hydrogen, what? You know, what have you guys achieved thus far? And can you give us an idea of what might be coming up for you in the company in 2024?
Yeah, so we’ve spent three years developing, perfecting and scaling the core technology into a product and the product is a big thing. It’s 100 megawatt electrolyzer plant. It’s funny to call it a product, but it’s about an acre and a half in size, right, the thing we sell is about an acre and a half in size. It’s a lot of steel, as well as a lot of kind of really deep Material Science Technology in the core of it. We haven’t built the first full scale one yet we are doing that now, with a customer. It’s a real project. As I mentioned in Texas, it will be used for ammonia production. What we have built and and operated are a number of prototype units ranging from the one megawatt scale to the 10 megawatt scale, so we own and operate those as r&d platforms to prove out our technology 100 megawatt electrolyzer is a very big thing. They don’t get built that big in the world yet today. So I think we’re we’re breaking ground with that we need 24. For us, our focus is on execution materialising the technology into a product that actually works in the field. You know, that’s, that’s what we’re proving out this year. 2025 2026. Those are the initial years of scaling, we have to scale manufacturing. And we have to scale or deployment project deployment capability. But our goal is, you know, before the end of the decade to be in the 10s of gigawatts a year kind of production mode and deployment mode. That seems maybe a little crazy given where we are today building our first 100 megawatt plant, but in the grand scheme of things relative to the scale of the applications that we’re feeding into, it’s just a drop in the bucket. And so we have a long way to go before you know we we have a real industry here that has material Real decarbonisation impact, which is part of the reason why we’re building a product that’s, that’s so big, right? It’s it’s hard to imagine decarbonizing sectors like ammonia or steel with with a small product a one megawatt kind of scale electrolyzer, which is how they’re built today, generally,
in for context 10s of gigawatts, is that supplying energy to an entire state? Or can you provide us an idea of the relative scale, the amount of energy that is by the end of the decade? Well,
you know, again, if you look at the US electric system, it’s about 1000 gigawatts of power generation, so 10s of gigawatts a year, it’s pretty insubstantial, relative to the US power system. If you look at us ammonia production, it’s, you know, probably would feed, I can fact check this later, I’m just going to take a guess, single digit percent of the hydrogen consumed by the US ammonia production industry. So it’s a beginning. On the other hand, from the point of view of a startup, you know, we intend to be the category leader in electrolysis equipment and technology. It’s a pretty impressive growth plan, I think, and, you know, certainly would put us on the map as, as a leader in the industry, and allow us to go down our learning curve and get better, bigger and cheaper as we go. How
would you advise founders that are starting? Well, you can call it deep tech, hard tech, whatever you want to call it, but a business that requires significant capital for r&d purposes? How would you advise those founders for their fundraising journey because as the CEO and co founder of electric hydrogen, you’ve raised over $600 million? I’m curious if you can share some of those insights, some of those learnings, because you’re not, you’re not building the next b2b SaaS company, you’re not building an AI? It’s it’s a very different appetite, or it requires a different appetite from investors. So how would you advise founders that are looking to raise larger amounts of capital to bring their innovation, their vision to life? Yeah,
great question. Well, so your investors are your customer, in a way, they’re the customer for your company, right about for your product. And, you know, looking at it from their point of view, I think it’s important to understand that the problem you’re trying to solve has to present the really meaningful opportunity for them. So you know, people know intellectually and here all the time, you know, you have to be solving a problem. That’s, that’s worth a certain amount, right? But really, to make that to make that actionable, you have to think a little differently about it, right? Is the problem important? Is it scalable? If you succeed with the hard part, the tech development part, which is super expensive, if you succeed with that, what’s the payoff look like for them? And to really think that through and presented properly to raise capital, you have to not just think about the technology, you have to think about the market? How are you going to solve a problem in the market? You know, as technologists, and most, most deep tech founders are technologists, right? We tend, and I’ve made this mistake many times in my career, we tend to think, hey, look, this is a better thing. I built a better thing, mousetrap people are gonna buy it, it’s obvious. Well, ya know, lots of companies have failed with that attitude, right? Because the, the entrenched players in the market will come against you that it’s a much, much harder to harder problem to succeed financially as a business and sustainably than to solve the technical problem alone. So you got to think all that through. And as a founder, I think you have to have, you have to bring it in, bring around yourself, people who have very deep insights into the markets you’re trying to address and, and leverage their knowledge and insight to build that plan. People often talk about build that story. I don’t like to think that way. If you approach your investors as dummies, and I’m going to tell them the story, and if they buy it, they’ll give me money, fine. That could work. That’s a hard way to live. And it sets you up for future failure. Because in building and running a company, you have to do the right thing. But if you’ve told a story and raised money on a story, well, you’re kind of stuck with that story. And your investors are going to hold you to it, whether you think it’s right or not. So you’re setting yourself up for a mismatch or a conflict with your investors, the way to raise a lot of capital is to make your investors, your partners to really align interests with them. And that means telling them what you actually intend to do the truth and making sure that that’s consistent with what they think is valuable. Right. And so, if you do that, then your first investors become your best cheerleaders and fundraisers and frankly, that’s the way you raise a lot of money. Your your initial investors help you raise the next round, and then your new investors help you raise the next round after that, because they believe in you don’t approach don’t approach your VC He’s as adversaries. That’s, that’s, I think, to distil the advice.
Yeah. You mentioned one other thing before the show that I found interesting. And I see this as an investor. But you said, some founders worry a lot about dilution. And in your experience, that’s a mistake. Why do you think founders should be less than illusion sensitive? And obviously, within reason, but in general, why do you think founders should be less dilution sensitive?
You never know what’s coming at you around the corner. And capital, like dry powder, as they call it in your on your balance sheet is, you know, that’s your lifeblood you, so raise more than you think you need, raise it sooner than you think. And don’t worry about the dilution. Because really, what you should be focused on is enterprise value creation. When you take that lens and you say, you know, I don’t, I’m not going to focus on the size of my slice, I’m going to focus on the size of the pie. That’s a much much higher leverage mindset than focusing on your proportional size of slice. So don’t fight over the pie. Make the pie bigger.
Rafi, if we could feature anyone on the show, who should we interview and what topic would you like to hear them speak about?
You should interview my good friend and chairman of my board, David Danielson, who is with Breakthrough Energy ventures, he started ARPA E. He was with the DOD for many years. He is a super interesting guy. He’s a venture capitalist, but he’s also a technologist and has an amazing worldview. What
book article or video would you recommend to listeners either something in recent memory that you found particularly informative or something that’s inspired you?
Lots of books I I like but something relevant here. The Alchemy of air is a great book. We’ve talked a lot about ammonia and fertiliser. I’d encourage your listeners to pick that book up.
Got it? The Alchemy of air. And then last but not least Rafi, what’s the best way for listeners to connect with you or learn more about electric hydrogen?
Go to our website www.eh two.com. And my email is my first name Rafi at h2 dot com.
Well, Rafi, they thank you again for doing this. It’s like I said at the top of the show, it’s rare that we have someone building outside of you know, b2b SaaS, AI. It’s refreshing to hear about, you know, such an important topic from one of the world’s experts.
They can appreciate it very much. This is fun.
All right, that’ll wrap up today’s interview. If you enjoyed the episode or a previous one, let the guests know about it. Share your thoughts on social or shoot him an email. Let them know what particularly resonated with you. I can’t tell you how much I appreciate that some of the smartest folks in venture are willing to take the time and share their insights with us. If you feel the same, a compliment goes a long way. Okay, that’s a wrap for today. Until next time, remember to over prepare, choose carefully and invest competently. Thanks so much for listening