THE STANDING SENATE COMMITTEE ON ENERGY, THE ENVIRONMENT AND NATURAL RESOURCES
EVIDENCE
OTTAWA, Thursday, October 6, 2022
The Standing Senate Committee on Energy, the Environment and Natural Resources met this day with videoconference at 10:00 a.m. (ET) to study emerging issues related to the committee’s mandate.
Senator Paul J. Massicotte (Chair) in the chair.
[Translation]
The Chair: My name is Paul Massicotte. I am a senator from Quebec, and I am the Chair of the Standing Senate Committee on Energy, the Environment and Natural Resources.
Before we begin, I would like to introduce the members of the committee who are participating in this meeting: David Arnot from Saskatchewan; Michèle Audette from Quebec; Pierre-Hugues Boisvenu from Quebec; Rosa Galvez from Quebec; Peter Harder from Ontario; Julie Miville-Dechêne from Quebec; Josée Verner, P.C., from Quebec.
I wish to welcome all of you, and the viewers across the country who may be watching.
Today, we are meeting to continue our study on hydrogen energy.
This morning, we welcome Gene Gebolys, Director of World Energy GH2, and José Miguel Bermúdez, Energy Analyst, Hydrogen and Alternative Fuels, of the International Energy Agency.
Welcome and thank you for being with us.
You each have five minutes to deliver your opening remarks.
We will begin with Mr. Gebolys, followed by Mr. Bermúdez.
Mr. Gebolys, you now have the floor.
[English]
Gene Gebolys, Director, World Energy GH2: Thank you, Mr. Chair and the committee, for the invitation to discuss with you today the promise of low-carbon hydrogen in Canada. I’m Gene Gebolys, CEO of World Energy. We are a Canadian- and U.S.-owned business that has been commercializing renewable alternatives to fossil fuels for 25 years. We operate biofuel production facilities in the U.S. and Canada for road, rail, water and air applications. We are also now working to put Atlantic Canada on the fast-emerging global low-carbon hydrogen map with our efforts to develop a three-gigawatt wind hydrogen facility on the west coast of Newfoundland where, if we are successful, Canada will be home to one of the first and largest facilities in the world.
We first started to develop pathways to zero-carbon hydrogen as part of our $2-billion project to expand our sustainable aviation biorefinery in Los Angeles, the first commercial production facility of its type in the world. It is still the only one in North America.
In L.A., we use 100% renewable gas inputs to produce hydrogen, which make us one of the first such suppliers in California. That got us looking at where else and how else we could produce green hydrogen in greater quantities for a broader global market. That brought us to the world-class wind resources and ample fresh water supplies of Atlantic Canada. That also brought us to an old mill site in Stephenville in the province of Newfoundland and Labrador and the areas that surround it. There, we intend to spend $12 billion to develop a three-gigawatt wind farm on the province’s west coast.
Electrolyzers housed in Stephenville will convert the electricity we produce to hydrogen. This hydrogen will then be coupled with nitrogen, which is abundant in the air we breathe, to form ammonia which is stable and safe to transport domestically and throughout the world.
Our project is called Nujio’qonik, meaning “where the sand blows” in the native tongue, and it’s what people of the First Nations called this place.
World Energy GH2, as this business is called, was born out of the urgent necessity to transition to clean energy sources. Never has the need for that transition been more acutely apparent than this year as we struggle with ever-intensifying storms, including the hurricane that recently reached our eastern shores, and the war-induced energy crisis hitting Europe.
I’m going to go off my prepared remarks for a second and get to the heart of what I want to speak to, which is the fantastic opportunity here on the East Coast of Canada, resident in the fantastic wind resources that exist in Atlantic Canada, to really be a huge player in this very important new market.
The challenge that we face, though, is twofold. One part of that is the Inflation Reduction Act, or IRA, that the United States recently passed, which has created a competitive dynamic that is pulling investment and supply to the U.S. from the rest of the world. The second part of the challenge is that the supplies to make green hydrogen and, most importantly, the electrolyzers on which this technology is dependent are in relatively short supply. So there is very strong demand and very limited supply for the equipment to make green hydrogen.
Therefore, if Canada is to capitalize on our tremendous opportunity in the east, we need to move quickly, and we need to move to at least address some of the competitive disadvantage we have in Canada to the United States.
If we are able to do that, we have tremendous competitive advantage based on our relatively sparse population density and our incredibly good wind and water resources. Once established, this industry — not just our project but throughout Atlantic Canada — will become a global leader in the space. Hydrogen will continue to grow in importance around the world as an alternative to fossil fuels and Canada will be known as the green hydrogen supplier to the world.
Thank you for the opportunity to address you. I am open to any questions you may have.
The Chair: Thank you very much.
José Bermúdez Menéndez, Energy Analyst, Hydrogen and Alternative fuels, International Energy Agency: Thank you very much, Mr. Chair. First of all, I would like to say thank you to the Standing Senate Committee on Energy, the Environment and Natural Resources for this invitation and for having the opportunity to discuss the findings of the research and analysis we have made at the International Energy Agency, or IEA, related to hydrogen. I really hope that our work can help inform the discussions of the committee.
The IEA launched a landmark report called The Future of Hydrogen in 2019, and we found an impressive momentum behind hydrogen at that time, although there were still many doubts about whether the time for hydrogen had really arrived, since there have been many false starts for hydrogen in the past. Today, we think it is safe to argue that momentum from 2019 has turned into real-world action, and that progress is happening on the ground and is reaching a pace that we have not seen before.
Many reasons are behind this but definitely the net-zero greenhouse gas emissions commitments that governments have announced in recent years have boosted interest in hydrogen. In addition, the current global energy crisis sparked by Russia’s invasion of Ukraine has further strengthened the interest in low-emission hydrogen as a way to reduce dependency on fossil fuels, particularly in Europe, but this also affects large potential producers such as Canada, the U.S., Australia, the Middle East or Latin America.
Hydrogen is not really a new thing. It is already a major business. In 2021, global hydrogen demand reached around 94 million tonnes, practically all of it used in traditional applications such as feedstock for the chemical industry or refining. The adoption of hydrogen, however, as a new fuel or as a fuel in new applications is quite minor today. In practice, it is limited only to road transport and accounts for way less than 1% of total hydrogen demand.
However, hydrogen will need to play an important role in the transition to a net-zero energy system. In the IEA’s scenario of net-zero emissions by 2050, hydrogen demand grows sixfold by 2050 and its use expands to new sectors, including new uses in heavy industry, such as iron and steelmaking; shipping; aviation; and long-distance transport, particularly to complement electricity in heavy-duty trucks. And the uses in certain cases are directly as hydrogen or, in other cases, hydrogen-derived fuels such as ammonia or synthetic hydrocarbons.
Meeting net-zero emissions by 2050 will require that hydrogen and its derived fuels meet more than 10% of total final energy consumption, growing from what today is less than 0.1%.
However, we have to be clear that hydrogen is not a silver bullet or anything similar to that. It is just one more piece of this complex puzzle that we need to put together to achieve net-zero emissions by 2050, along with other key pillars of decarbonization of the energy system such as improved energy efficiency; deployment of renewables; direct electrification of end uses; carbon capture, utilization and storage; sustainable bioenergy and others.
However, hydrogen will need to play a critical role in certain sectors which are particularly hard to decarbonize.
However, our analysis of policies and projects from around the world suggest that hydrogen use is growing. We have seen it in the last few years and we expect to see this in the near term, but expansion to new uses is still fairly limited. Under the current trends, we estimate that hydrogen demand can grow up to 150 million tonnes by 2030 with only 2 million tonnes coming from new uses for the applications. Meeting government pledges and government net-zero commitments would require a step change in demand creation, particularly for low-emission hydrogen and in new applications, supported by concrete and ambitious policy action.
Increasing hydrogen demand is one side of the coin, but the other side is making hydrogen production cleaner. Today, hydrogen is still not the clean energy vector that it needs to be to help us meet climate goals. Hydrogen demand is met almost entirely using unabated fossil fuels. This results in annual total emissions of more than 900 million tonnes of CO2. Production of low-emission hydrogen today is less than one megatonne, so less than 1% of the total hydrogen production.
This, of course, is highly unsustainable, but the good news is that the pipeline of projects for the production of low-emission hydrogen is growing at a very impressive speed. If all announced projects under development today around the world would be realized, by 2030, annual production of low-emission hydrogen could reach 24 million tonnes. This is quite an impressive figure. It is equivalent to 70% of the annual low-emission hydrogen production that will be needed to meet government pledges but only a quarter of what would be needed to put the world on track to meet global net-zero emissions by 2050.
These are, of course, encouraging signs of progress, but there are still important challenges ahead. A planned project is not a warranted player or one that we can say that we have in the pocket. A significant part of the projects under development are at advanced planning stages, but only around 4% of them are already under construction or have reached a final investment decision. So we are still a long way from completely realizing the project pipeline.
This slow progress on real-world implementation is a consequence of uncertainties about demand, as I have mentioned before, lack of clarity in regulatory frameworks and lack of infrastructure to deliver this hydrogen to the end users.
This is a global picture that I wanted to give as initial remarks. I will happily respond to all questions, to the extent possible, of course, about this and other hydrogen-related topics that the committee may have. Thank you very much.
The Chair: Thank you very much. We will move to questions now.
[Translation]
Senator Miville-Dechêne: Thank you to our two witnesses. Your remarks were very interesting. My questions are for Mr. Gebolys, who made us dream with his project in Newfoundland on water and hydrolysis. It sounded absolutely wonderful.
If I understood correctly, you said that American laws were more favourable to the production of green hydrogen than ours. What do you want? What are you going to get in grants for these facilities?
I have many questions, but I’ll start with that.
[English]
Mr. Gebolys: My deepest apologies. I know the question was directed at me, but I did not get interpretation.
Senator Miville-Dechêne: Okay. Do you want me to translate?
Mr. Gebolys: Thank you so much. Your English is much better than my French.
Senator Miville-Dechêne: You made us dream with your plant in Newfoundland. Listening to you, it is going to be clean water, jobs probably, and exportation. I want to know a little more about the details of this project. You were saying that the American laws were better in terms of incentive for green hydrogen. This is what I understood. Maybe I didn’t.
I would like to know what you are asking for from the federal government in terms of grants. I know there are a lot of grants now for hydrogen. What are you receiving for your project, and how do you think this is going to be as a project that will function?
Mr. Gebolys: Thank you. And thank you for the interpretation service, as well, with that question. So far, we have asked for no grants of any sort and no public funding of any type. We have been working on the project for the better part of a year and have not anticipated needing to seek any funding from the federal government. In August, the Inflation Reduction Act in the U.S. had roughly $400 billion worth of supports and subsidies for various clean industries in the U.S. At the top of that list is green hydrogen. Most importantly, they have a fully refundable investment tax credit in that legislation that creates a huge advantage for projects that go forward in the U.S. relative to those that exist anywhere that doesn’t get that advantage. It is an enormous advantage not only to the project but it creates a pull on resources.
Senator Miville-Dechêne: Can you make it without the same kind of incentives in Canada, or not?
Mr. Gebolys: We can’t compete for the equipment if we don’t have the same economic basis for operations. If there is a project that has a 30% discount to ours in the United States, it is going to be very difficult for us to compete in global markets with those projects. It has created a significant obstacle to our ability to go forward in Newfoundland.
Senator Miville-Dechêne: Thank you.
Senator Galvez: Thank you so much to our two witnesses for coming here and telling us your vision and your way of seeing the mosaic of the decarbonization path. First, I would like to say that I agree with almost 100% of what Mr. Bermúdez Menéndez has said about the issues and the challenge of using hydrogen as a part of decarbonization.
My question is to Mr. Gebolys. There are lots of moving parts. First, I want to know if your project is within the announcement of the German Chancellor, who came to Canada to announce the green alliance with Canada. If it is, I would like to know if you are in talks with, for example, Newfoundland — and I’m very happy to see that wind energy is finally going to be produced in Newfoundland, because there is so much potential for that and this should have been done many years ago.
But there is another big project in that province, the Muskrat Falls Project. You have a lot of green energy in that area. The problem with hydrogen is that you are saying it is going to be transported to Europe in relation to the energy crisis caused by the war in Ukraine. I hope you don’t expect the war will last that many years. When do you plan to deliver this? And are you counting all the emissions, the scopes? Because once it is produced it has to be transported to the other side of the Atlantic and that also causes emissions.
Mr. Gebolys: Those are excellent questions. Let me start by saying we were very proud to have hosted the Prime Minister and Chancellor at our site in Stephenville. It was a very important day for Atlantic Canada and, I dare say, for the world. Obviously, the Germans are in a difficult situation; in fact, all of Europe is in a difficult situation and I might say all of the world is in a difficult situation relative to the Russian-Ukrainian war. I am not going to make any predictions about how long that situation will last. My insight is no better than anyone else’s.
We spent last week in Germany. We have been talking to many off-takers throughout Europe, those who are very interested in displacing fossil inputs, particularly natural gas, with new sources of cleaner fuels from friendlier places. Obviously, green hydrogen from Canada checks both of those boxes. There is significant interest in Europe in participating with us on that supply. Having said that, the Prime Minister did commit to Germany to making green hydrogen available to Germany by 2025. We are the most likely project to provide that green hydrogen.
I’m also pleased to say that the morning of that visit we met with the other nine projects that are being proposed in Atlantic Canada. We have since collectively signed on to a joint statement of our collective interest in establishing an industry in Atlantic Canada. All of us have acknowledged that the most important thing we can do in Atlantic Canada is to move quickly. I can’t emphasize enough the importance of speed. These are very large projects. They take a very long time to build. They are complex. We need to get into the supply chain of equipment or we will miss this opportunity.
As far as your scope 3 and scope 1 emissions go, yes, we have to be held to the highest standard and transport does cause emissions. We need to have those accounted as well, as does the making and building of the equipment. We are not a product that is without trade-offs — all energy has its trade-offs — but green hydrogen is dramatically better than the products that it is replacing. But that doesn’t get us out of needing to account for all impacts and being very clear, open and transparent about them.
Senator Arnot: Thank you, witnesses. This is again directed to Mr. Gebolys. I want to get a better understanding of some of your information.
You are making a $12 billion investment in Stephenville. You are saying that Canada needs to insulate against the legislation and policy of the United States, which is drawing investment to the United States, and that’s going to have a significant impact. You are telling us that there is an opportunity that will be lost if Canada doesn’t get in the game very quickly and start to protect some of these industries.
Can you tell me what the timeline is for the construction of your plant? If you are going to start supplying by 2025, I need to know how quickly we need to move. More importantly, what are the tax breaks, incentives or mechanisms you need to make sure your investment is successful as you move forward and is protected against money going to the United States and taking over the lead or golden opportunity that Canada now has?
I think what you are saying is that there is an opportunity for Canada to export to the EU on a long-term basis if the relationship between Germany and Canada proves positive. I would like you to comment on that and try to enhance my understanding of what you really want.
Mr. Gebolys: I think your summary of my remarks was exactly as I said them. I think the guide on what Canada will need to do to compete, whether it is our project or any project in Canada, is to really look at what’s happening in the United States. I don’t think Canada needs to match dollar for dollar what’s happening in the U.S. I don’t think that is necessary. I do think there needs to be a levelling of the playing field. In particular, this fully refundable investment tax credit effectively makes the citizens of Canada partners in the development of these projects. These are megaprojects. They are very large. They have to be large or they don’t work. You can’t do these projects at a small scale.
Frankly, given the size of the problem that we’re trying to address, you have to operate at scale or you may as well not bother. So we are proposing a very large project. We will be under the gun to reach 2025 supplies and we won’t be able to do that unless we start ordering long-lead-time items by the end of this calendar year. We are already tens of millions of dollars invested into this project and increasing quickly.
For proponents of these projects, it’s a high-risk endeavour. However, if we’re able to at least compensate to some degree, if it’s a fully refundable 30% investment tax credit, it won’t go into a developer’s pocket; it will go toward the development of the projects and will only go to level the playing field with similar investments in the United States, many of which are being planned now.
All of the developers of these types of projects can just as easily go south of the border or north of the border. They typically go where capital wants them to go. It’s a 30% fully refundable tax credit that would get us to some level of parity with the U.S.
[Translation]
Senator Audette: Thank you very much for teaching and sharing your knowledge. Of course, one of the gifts that we as senators receive when we sit here is the passions, the knowledge and what motivates us as people and as senators.
Labrador is a territory that I have been involved with since birth. To what extent have reflections or commitments been put forward so that the initiatives you have presented to us are discussed with the Inuit and the Innu? To what extent are they partners in these projects?
In the ecosystem of the economy, there are people who are there and who are, as you mentioned, citizens of Canada. I wouldn’t say Inuit or Innu citizens, but peoples and nations. My question is for Mr. Gebolys.
[English]
Mr. Gebolys: It is the critical question. These lands on which we would propose to put the wind turbines are not our lands. They belong to the people who live there and the people who have lived there. We cannot do this without their full support. We recognize that. For months, we’ve been talking with the communities about how we can best serve their needs.
In all of the communities that we propose to go into, we will make the local communities part of the projects. They will be brought in from the beginning, middle and end. We just signed an MOU, I believe last week, with the Qalipu about how we would be providing benefit sharing to that First Nation, but not only to them. Everywhere we go, we have to make partners of the people who are hosts to our projects. That’s not something we feel that is put upon us. It’s an opportunity. These are going to be our communities, too. We have to be good partners in the community. We fully recognize this.
If you don’t mind me sharing this, I was at a meeting at a very large house in Three Rivers with my partners in this project. We sat and listened to the concerns of the community there. Many people, of course, want to know about it: Is there vibration? What’s this going to do to the visual landscape? They asked reasonable questions.
Overwhelmingly, the response has been that, without overlooking those things, we need to have an opportunity for our young people to stay here. They shared with us the demographics in that particular area. It was overwhelmingly clear that these communities need new reasons to have economic vibrancy. There is a tremendous opportunity here to be of tremendous good to the First Nations and to the people who live in these areas, but it’s incumbent upon us to work with them to provide that good. We embrace that obligation.
Senator Audette: Thank you.
Senator Harder: Thank you to our witnesses. Mr. Gebolys, I want to pursue your comments with respect to the United States’s IRA and the Newfoundland and Labrador project. The IRA came out in August, the visit of Chancellor Scholz in September, and then the statement.
Without further incentives paralleling in some measure the IRA, is the project that was announced in September in peril?
Mr. Gebolys: Yes.
Senator Harder: Thank you for the clarity on that. What time frame do you require action by governments for the time commitment of 2025 not to be imperiled?
Mr. Gebolys: Well, as I said earlier, we’re spending money at an ever-increasing rate here. We know that we need to buy long-lead-time items by the end of this calendar year. This is all going to be an exercise in risk evaluation as we continue to spend more and more money. In permitting, we are working through processes in the province. We’re putting up what’s called MET towers to measure the wind quality throughout the region. We’re laying all the groundwork to be able to make this project a reality.
What happened in August with the IRA was not just something that impacted the United States. The U.S. has been a laggard on issues relative to climate. It’s virtually abdicated any authority whatsoever in recent years. Certainly, the movement was toward private leadership in the area of climate in the United States.
That has changed recently. Not only has the U.S. stood up to take a real leadership role, but, in effect, they’ve thrown down the gauntlet to the world. These projects are going to go to places —
Senator Harder: I know the battery sector for the automobile industry is completely in turmoil now because of the IRA. I guess we shouldn’t complain about the IRA — it’s a positive step — but it is disruptive of the actions a number of jurisdictions have taken.
Mr. Gebolys: Yes.
Senator Harder: Are there ways that other governments — I’m thinking of Europe, the destination market for your project and presumably others — could offer stronger cooperation which Canada could seek from the European Union collectively in developing this project and other projects to buffer some of the draw that inevitably will be that great sucking sound of the IRA?
Mr. Gebolys: Yes, absolutely. The Europeans are keenly aware that they are going to need to import a great deal of their hydrogen. They know that. They’re preparing for it. They’re developing port access. We’re working with the port of Wilhelmshaven in Germany and the port of Rotterdam in Holland already to work the front end and the back end of the equation. We’re aware of the need to work closely with the Europeans. It’s not the only market that will want green hydrogen, but it is the market under the most duress now and with the broadest commitment to move urgently toward a cleaner energy market.
So, yes, there are many opportunities to work more closely with the Europeans. They’ve got a program called H2Global in which they’ve put up €900 million — which is a drop in the bucket in this business — to provide some auction subsidies to the world, to provide hydrogen to them, starting in 2025. That’s one example of programs that are open to countries around the world to help facilitate both the sending and the receiving of material into Europe, but there are many others.
Senator Harder: If I have time for a supplementary to Mr. Bermúdez, what can the IEA do to help broaden and strengthen the market for hydrogen for both producers and consumers so that the objectives that you stated — which are reasonably ambitious, a sixfold increase — can be achieved? What are you doing, and what more can you do?
Mr. Bermúdez: Thank you very much for the question. We at the IEA try to provide the most updated, significant and independent analysis to our member governments, of course. This is something we do regularly, and now we have an annual update on — I wouldn’t call them hydrogen markets yet because that market itself does not exist yet. It’s in the nascent stages. We try to provide annually the most updated situational picture of this market.
As well, as part of this annual update, we provide regular policy recommendations so governments can put in place what we think are the best policy measures to facilitate the creation of this market. This is something that we are doing now annually. It was started last year. In the past, we were not having this continuous tracking of hydrogen developments. Now, we have this report annually.
We have the Clean Energy Ministerial Hydrogen Initiative, in which Canada is one of the co-leading countries participating in this initiative. Through that, we are trying to develop a platform for dialogue within countries and in the private sector to find solutions for the different challenges that the hydrogen technology markets are facing. In particular, for example, the last one that we have put in place is about the hydrogen trade and having a platform for countries to think about what kinds of rules, measures and policies they need to implement to facilitate the international hydrogen trade.
The Chair: Thank you. I’m going to ask a question of each of you. Please make your answers short.
I’ll start with Mr. Bermúdez. We had as a witness here about two weeks ago Dr. Howarth from Cornell University. He sits on the board for New York State, and he is also an expert witness to the U.S. Congress. He is highly credible. He looks like a pleasant chap, but he was quite negative on hydrogen. He likes hydrogen, but he said no matter what you do, there will be emissions of all kinds of stuff. We haven’t been able to stop it so far. Even the CCUS projects that we’re looking at are still emitting a lot of methane. He is saying, “Don’t touch it.” Apparently, the State of New York will not touch it either because we’re not going to get to this ideal scenario we all dream about.
Could you comment on that? Are you aware of Mr. Howarth’s opinion, and do you agree with him?
Mr. Bermúdez: I was not aware of his opinion in particular. I have heard of other experts with similar opinions.
I don’t necessarily agree if we think that hydrogen can be produced through many different production methods and from different energy sources. In the case of natural gas, there are expediencies or certain natural gas supply chains that are particularly low in upstream emissions. I think Norway has been building an example of how best to deal with fugitive emissions, with flaring and other sorts of best practices. The methane emissions in the case of Norway are particularly low.
That’s not the widespread case, unfortunately, but they have set a precedent on how to do things more sustainably in terms of using natural gas for the production of hydrogen.
There are other alternatives that produce significantly less emissions, like the direct use of renewable energies and the use of biomass that, under certain conditions, can even deliver negative emissions. I think I have a more positive view, but, of course, there are challenges. There are technology challenges and technology improvements needed, and they need to be boosted by policies and by the incredible sources of knowledge that we have within the private sector as well.
The Chair: Mr. Gebolys, I must note even the words you use. You say, “if this project works” on the Newfoundland projects with Germany, and I guess I am learning that the politicians, the Prime Minister included, and maybe rightfully so, want to give a sense of certainty and a sense of confidence that we are going to this done. But I must admit, with your testimony, that it seems to be very far from getting done. We’re still not sure of the commercial terms. We need a 30% return on investment or an investment tax credit, I gather. I gather there is still negotiation on price. Therefore, we are a long way off the 2025 delivery.
Now, we have a new entrant, which is significant. They’ve got the market and they’ve got the money in the United States. Yet, at the same time, we’re often told that we have special advantages — water and all kinds of traits — but as soon as somebody else puts cash on the table, we seem to shirk and disappear.
Could you comment on that? Are we dealing with something serious? Are we dealing with a scheme to hopefully negotiate a better deal?
Mr. Gebolys: I think the truth is somewhere between those two. The wind resource in Atlantic Canada is world class; it is really quite unique and quite good. It is effectively offshore wind onshore. Offshore wind generally costs about twice as much as onshore wind to produce, and 75% of the cost of producing hydrogen is based in the cost of the electricity. If you can get a very good wind resource, you can have a competitive advantage.
Less obviously, the area that we’re working in has excellent fresh water. To create the hydrogen, you are taking large amounts of energy and splitting the H from the O in the H2O.
The resources in Atlantic Canada are excellent. Without a doubt, they provide a real competitive advantage. That’s why I said I don’t think we need to match the U.S. dollar for dollar.
As to your question about whether this is going to happen or not, that still depends on things beyond our control. We need to have a province that wants it to happen. We still have to have communities that intend for it to happen. We still need to have a national government that wants to support making it happen.
I just got back from Germany, as I said. The market is there. There’s no question. The entire continent is grappling with their addiction to cheap Russian gas and how they can continue to have a manufacturing sector without it. This is a crisis of the highest proportion in Europe.
The market is there. That’s the least of our concerns. We need to get the project permitted. We need to get the project moving. We need to get the project on something like a competitive footing with our neighbours to the south.
Senator Galvez: Thank you very much for that. It’s becoming more and more clear.
My question will be to Mr. Bermúdez because you have the global vision, the portrait of the world and how fast we need decarbonization to happen. We know that the U.S. has promised hundreds of millions for hydrogen, and Europe is promising $430 billion, but still the price of producing hydrogen goes from €1.50 for grey, and for green, up to €3.50 to €6 per kilogram of hydrogen.
And if I look into the reality of things, in the U.S., it’s California that has 46 stations for refuelling, with 43 of them being in California. So this is not progressing at the pace we need.
You have heard what Mr. Gebolys has explained about his project. I know I’m putting you on the spot, but can you give us your opinion on this project? Thank you.
Mr. Bermúdez: Thank you very much. Something that’s true today that we have to flag is still the cost of green hydrogen and blue hydrogen, if we want to use the colours. It’s still higher than an average fossil-based hydrogen. However, we have to keep in mind as well that low-emission hydrogen is not only competing with hydrogen. There are other applications in which the cost does not need to go that low to US$1.50 or US$2. There are certain applications in which it would be competitive even with some higher prices to replace certain fossil fuels in other applications.
Another important fact to keep in mind is that, yes, normally between US$1 or US$1.5 per kilogram is quoted for fossil-based hydrogen, but that’s not the case everywhere in the world. I think Mr. Gebolys has used an example in Europe where, today, the cost of grey hydrogen and fossil-based hydrogen can be weighed at US$5, US$6 or US$7 per kilogram due to the current situation. Of course, we don’t know how long the situation is going to last, but the situation is there. It’s not going to be enough at the moment. That’s why there’s an additional need for policy and regulatory support for grey developers.
I agree with something that Mr. Gebolys has said, which is that the demand is there. It’s just a matter of making sure that if we really want to go down the decarbonization path, the first thing we need to do is replace that grey hydrogen with a green renewable-based hydrogen or hydrogen-based with fossil fuel CCUS. That demand is already there. If we really want to put the world onto the decarbonization path, there should be demand creation in other sectors. For that, there is a need for policy action. It could be through quotas or mandates in new sectors. That will create the demand signal that will help with looking at investments to make projects like Mr. Gebolys’s competitive in the short term.
But there is a need to accelerate the process if we want to reach that net-zero pathway by 2050.
Senator Galvez: Does the development and production of hydrogen have to go hand in hand with the development of fuel cells for the whole thing to work?
Mr. Bermúdez: In certain applications, it will be needed. A clear example is transport. We can expect that most of the transport will happen through fuel cells, but not in other applications. Take the example of iron and steel making. That does not require the use of fuel cells. The use of hydrogen there is as a chemical reactant that does not need to be transformed into electricity with fuel cells to be used. In the case of high-temperature heating in industrial processes, for example, it is combustion. In the same way we use natural gas today, we can use hydrogen, combust it and get high-temperature heat for industrial processes.
Certain applications will definitely need the development of fuel cells in parallel with production, but there will be other applications that will not need the development of fuel cells. That doesn’t mean there will not be the development of other follow-on technologies. Some of them are already commercial, and some of them still require additional development.
Senator Arnot: Mr. Gebolys, I’m just building on what Senator Audette asked. What is the equity state you’re offering the First Nations in that area in the Stephenville plant? I say that because I hope it’s a high percentage. They could have a long-term return on investment, which would really help the community.
Moreover, Canada has a reconciliation policy. I see your corporation could be a model of reconciliation and maybe a model corporate citizen for all of Canada, working directly with the First Nations and making sure they have a high enough equity state that they have a real return in the community.
Mr. Gebolys: Yes, I completely agree with the opportunity here to be of significant value in contributions to the communities in which we operate.
As you know, equity is the last to get paid. We want the communities in which we operate to be the first to get paid, not the last to get paid, so we’re setting up payment structures to allow for that.
The Chair: Thank you. If I could ask a quick question before we close, Mr. Bermúdez, I’m just trying to get an idea. When you talk about pricing and negotiation, I need a better understanding of what the cost component is. I think I heard that 70% of the cost is the cost of electricity. I guess it matters whether it’s a lot cheaper if it’s offshore than onshore. Can somebody help me out? What is the cost component? What about the electrolyzer, which is a critical component? Apparently, there is an insufficiency of those. What share of that component does that provide?
Can somebody provide me a quick answer? If it’s $100 of fees and revenues, what’s the cost to deliver that $100?
Mr. Bermúdez: Up to 70% can be coming from the electricity component, and then there is the vast majority of the rest, which is basically the capital component — the equipment that is needed. Part of that is equipment and part is land use and land ownership. So there are different components within the capital part.
But still, what is really critical is to decrease the cost of the electricity part because the equipment is being developed and the components are becoming cheaper. The scale-up and development that electrolyzer manufacturers are putting in place are really driving down the cost of those components.
The Chair: What price will the customer pay in the marketplace? How high can we sell it for it to still be economical for us?
Mr. Bermúdez: The big problem there is that market doesn’t exist today. There’s no clear visibility of what could be the price of hydrogen today because there is not yet such a market created.
The Chair: Mr. Bermúdez, how much will we pay for the electricity?
Mr. Bermúdez: That is enormously dependent on which electricity market is operating and on whether it can get a power purchase agreement provided directly. We have seen some projects in certain areas with really cheap renewables that can get contracts in the price of US$20, US$30 or US$40 per megawatt. An electrolyzer connected to the grid has to go through the electricity markets, and it depends on the region. I don’t know exactly what they are today in Canada, but I can say that in Europe, they can reach US$500 per megawatt in the current scenario. It depends a lot on the negotiation power of the company and whether they can negotiate a power purchase agreement.
The Chair: As I understand it, the short answer is that Mr. Gebolys should be able to pay a lot of money and still make some money.
Mr. Gebolys: We’re building our own wind capacity, so we’re going to be buying the power from ourselves. The reason we are going to the place we’re going is because of the quality of the wind. A really good offshore wind is typically nine metres per second in wind speed. We have, on average, 10.5 to 11 onshore. Typically, you have to pay twice as much to get offshore to get to these kinds of wind speeds. We’re effectively able to build the wind capacity there at a cheaper rate than we would otherwise have to pay to get to these levels of wind quality. If your question is about what drives the competitiveness of these projects, above all else it is wind quality.
The Chair: Thank you very much. I have to say, if you are looking for wind, you should come to Parliament Hill more often. You will find the quality of the wind to be very good.
Thanks to both of you for being with us this morning. We have learned a lot, but we have a lot more to learn. Thank you for being available to us.
(The committee adjourned.)