“Two years ago, we were still discussing an ‘All Electric World’ in Berlin. Now it’s clear we need both – molecules and electrons.” With these words, the state of Niedersachen’s economy minister Olaf Lies summarized well at this year’s Hannover Messe where we stand today. At the political level, however, this seems to not have been reached by everyone. Otherwise, the quasi funding freeze for H2 activities at present can hardly be explained. Reason enough for the Clean Energy Partnership (CEP) to send a pleading letter to Berlin (see p. 33) – and trigger for a palpable dispute among economic experts.
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The state of Brandenburg’s economy minister Prof. Jörg Steinbach put it in a nutshell in Neuruppin May 2024: “We are currently heading partly in the wrong direction.” For example, fewer and fewer electric cars are being sold, so the discussion of whether removal of the combustion engine is the right thing has gained in momentum. The installation of heat pumps is weakening, with more oil burners being installed instead. And the CO2 price, which was already over 90 euros per tonne in 2022, fell at the beginning of the year to around 55 euros (May 2024: about 70 EUR). So hydrogen would need a minimum price of around 100 euros to be profitable.
The hope of promise from year 2023 is gone. Instead, uncertainty reigns. One of the reasons for this is the 60 billion euro gap in the federal budget, which – as feared – has had impacts on various projects. On top of that was the Bonhoff scandal, which led to the German transport ministry putting a stop on subsidies, and since then only pure battery-electric vehicles have been on the road. And the overall economic situation with minimal growth does not exactly inspire confidence at the moment either.
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Final investment decisions (FIDs) have therefore, especially in Germany, hardly landed (even if a number of framework conditions have improved significantly, see H2-international May 2024), which has consequences. Steinbach said on the matter, “Some of our companies have lost their market leadership.”
Appropriate funding instruments demanded The German hydrogen association (DWV) therefore is demanding an “EEG for H2” – a funding framework comparable to that of the renewal energies law (Erneuerbare-Energien-Gesetz) and also based on the US Inflation Reduction Act. DWV chairman Werner Diwald would like to use it to “bring the 10 GW of electrolyzer capacities onto the market” that the federal government has targeted, even if it is already clear today that even these will not be enough.
There are funding instruments, but they are either not enough or do not suit the industry. The IPCEI projects (Important Projects of Common European Interest) of the EU Commission have so far taken an extremely long time until approval, which is why some of the framework conditions at the time no longer apply and some projects no longer appear to be economically viable. Additionally, these are investment grants that are not considered sufficient for H2 production with high operating costs. In addition to CAPEX funding, OPEX funding is also required, the industry has been saying for months.
Funds from the carbon contracts for difference could also be used, but some companies also view these critically. Kilian Crone from Energy Hub Wilhelmshaven told the newspaper Handelsblatt: “They do give customers, so energy-intensive industrial companies, security for their investments, but as a basis for the hydrogen suppliers, so for an investment in an electrolyzer, they are not sufficient.” In Wilhelmshaven, where 5.5 of the planned 10 GW of electrolyzer capacity is to be built, are therefore calls for “additional start-up funding for the operation of electrolyzers” in the amount of 40 billion euros.
Economy minister of Niedersachsen Olaf Lies passed the ball back to industry, however, stating that it lacked a stronger commitment from the business community. There is “real substance there now,” but it needs “a stronger focus.”
The industrial sector naturally sees this quite differently and is trying to make itself heard. For example, the Clean Energy Partnership (CEP), an association of various stakeholders, particularly from the automotive and energy sectors, initiated a joint statement with the DWV and on April 27, 2024 turned to the federal government with urgent words (see next page).
It is “normal for some projects to be canceled,” stated Peter Michael Holzapfel from Siemens in view of the prevailing uncertainty, but at this time Germany is in danger of squandering its starting advantage in the H2 sector.
Economically grim against the council
The funding debate is also currently taking on a whole new dimension, as the German Council of Economic Experts (SVR) has publicly disagreed on this for the first time. Veronika Grimm recently cast a minority vote in favor of H2 commercial vehicles, while four Council members jointly spoke out in favor of purely battery-electric funding. According to the newspaper TAZ, Grimm fears that a focus on battery mobility would mean that Germany in the development of fuel cells for mobility applications “may be irretrievably thrown back behind international competitors in terms of technology.”
This vote has nothing to do with the fact that she has taken on a supervisory board position at Siemens Energy or on the board of the Zentrum Wasserstoff Bayern (hydrogen center of Bavaria, H2.B), according to the Prof. who studied at TU Nürnberg. There have been minority votes before, but not in connection with such compliance allegations. She is only interested in a less risky, multi-track positioning for Germany, according to Grimm. And the German government, which the expert council is supposed to advise, has assessed the mandate as unobjectionable.
To the economics newspaper WirtschaftsWoche she stated: “The expansion of a nationwide charging infrastructure for battery-powered cars and trucks on freeways places demands on the electricity grid and requires a huge amount of space…. Whether the realizable infrastructures can meet the requirements of the traffic is in the stars.”
Cabinet agrees on H2 acceleration law Whether the hydrogen acceleration law (Wasserstoffbeschleunigungsgesetz) that was approved by the Bundeskabinett on May 29, 2024 can still help much remains to be seen. Because before this can actually come into force, the draft must be handled by the Bundesrat (federal council) and then also the Bundestag (federal parliament). The aim is to set the legal course for the accelerated development and expansion of the infrastructure for the production, storage and import of hydrogen.
Robert Habeck, federal minister for economy and climate protection, stated: “An effective hydrogen infrastructure is crucial for the decarbonization of industry; hydrogen pipelines will carry the lifeblood of industrial centers. Time is of the essence. In order for electrolyzers or import terminals to go into operation as quickly as possible, we need leaner and, above all, faster planning and approval procedures. With the Wasserstoffbeschleunigungsgesetz, the course is now set. The law removes obstacles to the approval of infrastructure projects that produce, store or import hydrogen. This is another milestone on the road to the hydrogen economy.”
The bill aims to make changes to environmental and public procurement law. Accompanying changes to the energy industry law, highway and regional development law and administrative court ordinance will come. For example, there are to be maximum deadlines for approval procedures under water laws, digital approval procedures, facilitation for the early start of measures, accelerated tender award procedures, shorter time to review court decisions and accelerated summary proceedings as well as reducing the amount of official testing required during the modernization of electrolyzers.
Very important: The infrastructure projects of the hydrogen acceleration law are then in the overriding public interest – similar to the acceleration of the expansion of renewable energies. Additionally, approval procedures for electrolyzers should be simplified by an amendment of the 4th ordinance for implementation of the emissions reduction law (BImSChV) and for some (< 5 MW) completely waived.
H2Regional concept of the BdWR The Bund der Wasserstoffregionen (band of hydrogen regions, BdWR) called for special funding in mid-May 2024 to support the transformation process, particularly for small and medium-sized enterprises. This alliance of various political players who aim to implement regional hydrogen concepts see an imbalance in the current funding architecture. Because the few investment decisions made so far have primarily gone to big industry, so that they can decarbonize their energy supply. An “incorporation of hydrogen will not be possible for small and medium companies and the transport sector,” fear the mayors as well as district administrators of the now over 30 Hydrogen Regions as well as the German association for gas and water standards (DVGW).
Volker Wissing, Source: Nadja Wohlleben
The H2Regional concept submitted to federal transport minister Volker Wissing provides targeted incentives that enable regional economic players to make their own investments in the transformation. This impetus is intended to address both investment costs (CAPEX – primarily in the transport sector) and operating costs (OPEX – primarily H2 generation and process heat supply).
Dr. Stefan Kerth, Landrat (district head) of Landkreis Vorpommern-Rügen, stressed, “SMEs rooted in the regions are not only the much-cited ‘backbone of the German economy,’ but continue to be a key engine of growth. It is also up to the German government to enable these players to participate in the ramp-up of the hydrogen economy in an economically viable manner.” Prof. Gerald Linke, chairman of the DVGW and one of the speakers for the BdWR, supplemented, “The ramp-up of the hydrogen economy in Germany can only succeed if it takes place regionally…. These companies now urgently need a support framework tailored to their needs…. By the strengthening of the regional players, the whole country benefits.”
Solar Global operates electrolyzer plant in Czech Republic
An electrolyzer in the town of Napajedla in southeastern Czech Republic has produced the country’s first green hydrogen from solar power. The industrial green hydrogen production facility is run by Solar Global, one of the leading companies in the Czech renewables sector.
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This hydrogen plant should be seen primarily as a pioneering initiative since its capacity of 230 kilowatts is relatively low. It can consume up to 246 megawatt-hours per year of electricity. The power is sourced from a photovoltaic plant with a peak capacity of 611 kW. Battery storage is used to buffer the discrepancies between generation and consumption. In line with the Czech hydrogen strategy, most of the hydrogen ends up as fuel.
“Green hydrogen produced in this way can be used at the refueling station in Napajedla to fill up not just trucks and buses, but also cars with environmentally friendly hydrogen propulsion,” explained Vítězslav Skopal, owner of Solar Global Group. According to Solar Global, the plant can supply around 8 metric tons (8.8 US tons) of green hydrogen. This is enough to enable a car to travel 800,000 kilometers (500,000 miles) and a hydrogen bus to travel 80,000 kilometers (50,000 miles).
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Covering the entire value chain
Hydrogen production is expected to develop gradually into a major area of industry in the Czech Republic. As this happens, the Solar Global Group foresees an entire value chain developing alongside it. In addition to hydrogen production, the company has its sights set on the operation of vehicles equipped with fuel cells. Ultimately, the corporation also wants to get involved in the supply of hydrogen via refueling stations. “Of course all this depends on the building of other requisite technologies, in other words hydrogen compression, storage and refueling stations, and these are the next stages of our pilot project,” said Skopal.
The production of the country’s first kilogram of hydrogen was funded by the State Environmental Fund of the Czech Republic or SEF CR, which has been in existence since 1992. So far the environment ministry has financially supported four electrolyzers from the environment fund. “Two further projects are under examination,” stated Lucie Früblingová, spokeswoman for the state environment fund. The schemes under which hydrogen projects can receive support are currently being widened. The number of assisted projects and the amount distributed in subsidies are set to rise in the future.
Traditional producers look to green hydrogen
Among those due to receive funding is Orlen Unipetrol, the Czech Republic’s largest producer of “gray,” fossil-based hydrogen. The company, which is part of Polish petroleum giant Orlen, intends to install an electrolyzer in conjunction with a solar power plant in Litvínov. Groundwork will begin sometime between 2024 and 2025, with the production of green hydrogen slated to start at the end of 2028. However, Unipetrol is well aware that its own production can only cover a fraction of its hydrogen demand and is already considering hydrogen imports.
Another electrolyzer being aided by the environment fund belongs to the Sev.en Energy Group. The mining company operates what was once the extensive opencast brown coal mine in Most, Komořany, which will soon be exhausted, as well as the associated coal power plants. Sev.en is planning a massive expansion in solar power plants totaling 120 MW. The proposals include a 17.5-MW electrolyzer that will manufacture 360 metric tons (400 US tons) of green hydrogen a year starting in 2027. The costs for the hydrogen system, according to Sev.en’s head of transformation Pavel Farkač, run to around CZK 700 million, which equates to EUR 28.5 million, a substantial proportion of which is to be covered by subsidies from the environment fund.
In October 2023, the Czech government presented the draft of an energy and climate plan for the years leading up to 2030. The press release from the environment ministry stated that the use of hydrogen would increase within industry and the mobility sector by the end of the decade. The plan also foresees that electricity derived from brown coal will no longer be exported.
“Today is a good day for industry location Germany, climate protection and sustainable jobs in our country” – German economy and climate protection minister Robert Habeck was referring to the first bidding process for carbon contracts for difference, which the German government launched in mid-March 2024.
Fig.: Robert Habeck explains his policy
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Habeck.jpg – Wolf, bitte die Bildqualität so gut wie möglich optimieren
Source: Screenshot BMWK (German economy ministry) video
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“With the carbon contracts for difference, firstly, we are promoting modern, climate-friendly industrial systems of tomorrow. Through this will come new technologies, value chains and infrastructures. This helps, secondly, industry worldwide to switch to climate-friendly production. And thirdly, with the carbon contracts for difference, we are setting new international standards for efficient and low-bureaucracy funding,” he added.
Abroad, this step will be admired with envy, according to Habeck: “Cool what you’re doing in Germany. We want that too.”
Even if some people in Germany don’t like to hear that – because they are all too willing to participate in Habeck bashing – you have to give him credit for getting a lot of things off the ground during his time in office. And if representatives of the chemical industry in particular describe these carbon contracts as a “right step,” not everything can have been wrong.
Opinions on Habeck are currently divided: For some, he is not green enough, too pro-business, too industry-friendly – for others, he is too green, too idealistic, too poetic.
But if you look at what has been kicked off in recent months – in particular due to Habeck’s commitment – it can be seen, even with strong climate protection glasses: Germany has come through the last few winters well and now has several LNG terminals built in record time. Germany is gradually getting the energy policy framework that so many people have been calling for, which provides planning security – be it in the heating or transportation sector, but especially in the industrial sector.
Germany is making efforts to keep energy-intensive companies in the steel, glass, cement and chemical industries in particular in the country and to accommodate them. Germany is also forging international partnerships for the import of hydrogen and the transfer of technological expertise (see H2-international May 2024: p. 12 – Norway as partner country of Hannover Messe).
In addition, the IPCEI projects are finally gaining momentum (see p. 28), and even the update to the 37th ordinance on implementation of German emissions reduction law (37. Verordnung zur Durchführung des Bundes-Immissionsschutzgesetzes) was passed by the German parliament on March 14, 2024.
These and many other measures have led, among other things, to a 10.1 percent reduction in climate emissions in 2023 compared to 2022, which corresponds to the largest decrease in CO2 equivalents since 1990.
Yes, this decline is certainly due in part to Germany’s currently reduced economic strength. So? It is quite clear that a transformative process in the energy sector means that production cannot continue at the same level as before. And exactly this is wanted, because we can no longer afford to waste as much energy and as many resources as before.
A moderate decline in economic power is, in my opinion, very manageable for the time being and should be viewed positively, as this is precisely what will break up outdated structures and ensure the country’s future viability. It will now be a matter of keeping the right degree in sight, to find a balance between pressure to act and reasonableness.
This applies not only to the government, but also to the people, who also possess a great deal of responsibility – be it the choice of the next car or the next heating system. Less grumbling and more sustainable action can sometimes work wonders.
Feathers from chickens or other poultry could in the future help make fuel cells more effective and cheaper as a material for membranes. Researchers at ETH Zürich and Nanyang Technological University (NTU) in Singapore have extracted the natural protein keratin from waste feathers, which as a protein building block is an essential component of hair and therefore a natural product. Every year, 40 million metric tons of the waste accrue worldwide, which otherwise is for the most part burned. The researchers process the keratin into extremely fine fibers in order to weave membranes from them. These are then used as electrolytes in the fuel cells.
In conventional fuel cells until now, toxic chemicals have been used for such membranes. They additionally are expensive and not ecologically degradable. The new membrane, on the other hand, is much less expensive. The production in the laboratory, according to ETH Zürich, reduced the cost to one third of the conventional. The chicken feather membrane could also be useful in H2 production by electrolysis, because the membrane is proton permeable and allows the particle migration between anode and cathode necessary for water splitting.
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As a next step, the researchers will now investigate how stable and durable the keratin membrane is. The team has already applied for a patent for the membrane and is now looking for investors or companies that want to further develop the technology and bring it to market.
Short sellers are working massively against the company at the stock exchange. There were shortly even nearly 200 million shares sold short (on Nov. 16 still 193 million). But now, a price change upwards seems very likely. The reason could lie in the comments made at the press conference on the third quarter results, which Nikola – in my words – sees as being on the right track. The company amassed about 250 million USD in liquidity in the third quarter, and now has available 705 million USD in capital access.
The damage due to recalled battery-electric trucks was reported as 61.8 million USD (warranty reserve), where Nikola not only resolved this problem, but employed batteries from a still unnamed supplier that possessed advantages over the previous model, was the comment from the company. Additionally, the truck will be equipped with more features that will give the driver more options during use, for example from a distance using a smartphone app, the truck could be already prepared with heating in the winter and air conditioning in the summer, before the driver gets in. The battery-electric truck will, after the retrofitting in the first quarter, again find its way to customers.
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Now orders can come
There are 277 letters of intent for the purchase of the hydrogen-powered truck. In the fourth quarter, 30 to 50 of them are to be delivered and between 11 and 19 million USD turnover generated. With the battery-electric truck, meanwhile – despite the recall – an individual order of 47 units will be gained. In the next two years, Nikola is determined to deliver on average 250 to 300 trucks of both types per quarter.
The cash burn is at 100 million USD in the quarter, where for the current quarter, the financial effects of the recall on the battery-electric truck are still to be felt (61.8 million USD, of which about 38 million USD is capital that will be used). And the better the scaling of the truck production goes, the more cost-effective they can be manufactured, in order to at the end of the day come out with a good profit margin. Consider this: Money is the future will be earned especially with electricity and hydrogen and not with e-trucks per se. Nikola is at the start of its (success) story.
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California setting the pace
Nikola is concentrating, for good reason, on the US state California. Firstly, the best subsidies (up to around 408,000 USD per truck) are there; secondly, the time pressure for shippers to replace diesel-powered by CO2-free trucks is very high. Already starting 2024, in California only the last-mentioned will be allowed at port facilities, so there will be new registrations only for battery-electric or hydrogen trucks. We’re talking about over 30,000 trucks alone in this market segment – a winning pass for Nikola Motors, since in the Inflation Reduction Act are provided also 2.6 billion USD in subsidies specially for port facilities and also drayage trucks as well as for the H2 infrastructure.
Additionally, the competition for Nikola in this truck segment will be sparse for years to come. The look at the already approved vouchers for e-trucks is cause to celebrate: 96 percent of the vouchers of the California’s HVIP program for hydrogen-powered trucks and 50 percent of the vouchers for battery-electric trucks are attributable to Nikola. After all, Nikola is to have received approval of already over 400 vouchers for the two truck variants. A respectable success.
Lawsuit against Milton won
The lengthy legal dispute with company founder Trevor Milton was won. On October 20 came the decision. Milton must now pay 165 million USD to Nikola, which includes procedural costs Nikola first had to pay and now receives back. It should be noted here that there is still no indication of when the money will flow. Nikola still has to pay a portion to the SEC itself, as they reached a settlement of 125 million USD and must itself fulfill it. If 165 million USD flows from Milton soon, Nikola’s liquidity will rise, as the SEC payments will be divided over the next years.
Goals ambitious but realistic
Currently, Nikola can produce 2,400 trucks of either variant per year. In order to be profitable, sales of 1,000 trucks in 2024 and 1,500 in 2025 are needed. These targets are considered realistic from the company’s perspective, if Nikola delivers 250 to 300 truck per quarter. In my view, there will also be some large orders. Beyond this, declarations like the letter of intent (LoI) with Anheuser-Busch (800 trucks) will also flow into the orders on hand, is my expectation.
Nikola Motors – The Tesla of trucks?
For this hypothesis, I earned a lot of criticism. One cannot compare a startup like Nikola, though, with the success story of Tesla. One can say: Tesla started small, then came Elon Musk. The company reported heavy losses for many years and was even on the verge of bankruptcy before the breakthrough came. In the first three years, Tesla earned money, but not with the e-cars but with emission rights that could be sold to other car manufacturers. Tesla solved the chicken-and-egg problem by providing the electricity for the battery-electric vehicles itself by establishing a charging network made of its own Supercharger stations. Who would have bought a car from Tesla if there had been no charging option – as a package, even free of charge for years?
Nikola is doing the same – only for trucks with the help of electric charging stations and H2 refueling stations. Nikola wants to earn money with electricity and the self-produced or purchased hydrogen. In the USA are waving high subsidies of three USD per kg. Tesla continues to address the market for e-cars, but Nikola the segment for trucks. Both companies can be considered disruptive – they change markets and business models. Both are first movers.
Tesla and its CEO was met with much skepticism, but they proved that change is possible. Nikola is doing the same – only for commercial vehicles. Whether both can be compared with regard to the development of their valuation or share prices time will tell. For Nikola I am extremely optimistic.
Chief financial officer leaves the company
Stasy Pasterick was just six months in office as CFO. She is going over to Universal Hydrogen in the same capacity. It will be interesting to see who her successor will be.
Capital increase secures the company
On December 6, 2023, Nikola’s plan to raise fresh capital on the stock market became known. It entails a convertible bond of a nominal 175 million USD with 8.25-percent coupon (green bonds) with maturity December 2026 (0.90 USD conversion price per share) and 100 million USD in new shares at 0.75 USD per share. The share price fell from around 1 USD probably because – no guarantee – a hedging took place, so the price was depressed, as one can retain and stock up on the share after the capital raise. The share also fell because short sellers wanted to use the capital increase as a negative for themselves.
In accordance with experience, this measure will have already been successfully implemented by the time you read these lines. With it, Nikola is then thoroughly financed and will ultimately have 500 million USD in the bank. That the share price is rising above 1 USD again is also in the nature of things, because the financiers (investment banks such as Nomura) will most likely not accept a delisting of the share (it will come to this if the price sinks below 1 USD for a longer time).
Summary: Nikola is well on the way to positioning itself as a first mover in CO2-free trucks in the USA – first in California, later across the whole country and in parallel in Canada, where likewise large subsidy sums up to 380,000 CAD per truck are waving. Comprehensive funding programs are acting as a turbo, as the buyers of the trucks can comply with the regulatory pressure and are financially incentivized as well. The H2 infrastructure is being established by the company itself, but will be financially accompanied by business partners such as Voltera (EQT) and is receiving a boost by a 7-billion-USD program of the Biden administration, in which seven hydrogen hubs are to be established in the USA. The stock market will not be able to avoid newly valuing Nikola as a startup: In the right market at the right time. Maybe Nikola will even be the H2 share that develops the most price potential. What’s the phrase? No risk, no fun.
Nikola’s management team is considered excellent. CEO Stephen Girsky pointed out that this includes top managers who no longer actually have to work in a start-up, but who are happy to contribute their expertise to make the company’s vision a reality. This is the right approach – out of conviction and with experience.
Disclaimer
Each investor must always be aware of their own risk when investing in shares and should consider a sensible risk diversification. The FC companies and shares mentioned here are small and mid cap, i.e. they are not standard stocks and their volatility is also much higher. This report is not meant to be viewed as purchase recommendations, and the author holds no liability for your actions. All information is based on publicly available sources and, as far as assessment is concerned, represents exclusively the personal opinion of the author, who focuses on medium- and long-term valuation and not on short-term profit. The author may be in possession of the shares presented here.
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