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Appreciate that toneman. I agree with your points and I do consider those other elements as an integrated energy system is hollistic as you describe but yeah didn't go too into the pros / cons in the forum posts aha, nuclear is a whole other mess ahah I agree that makes no damn sense besides nuclear defense know-how at this point.
Even so, I do not believe hydrogen will or even perhaps should (until we have an abundance of cheap, green electrons) be a part of a future energy mix, just as it is not currently. And if it, is in any regard, I do believe that it will unfortunately not be utilising electrolysers and therefore I don't see ITM as a keeper for me for the time being. Honestly hope I'm wrong on electrolyser take up in the current industry but I'm not holding out much hope for the next decade at least. I'll be following itm and the rest along their journey for sure, best of luck for the hold to y'all.
I was actually really excited by the proposition of a green Hydrogen economy for the first month of so of reading up about it, seeing the potential in CSIRO reports and the slew of pilot projects. And then started to read about the alternatives, the inefficiencies of hydrogen as a fuel, the thermodynamic reality that renders hydrogen pretty useless as an economic energy carrier.
Energy hardware is ultimately an economic based decision, not one of values or psychology, cheapest wins -> wind and solar where pushed into economic feasibility by generous subsidies and renewable friendly tariffs on power generated but I don't think green hydrogen will benefit from that same commitment at the government level -> green hydrogen is at the mercy of the learning curve of renewables.
It's a hard bet. Don't get me wrong, we will need green hydrogen and no doubt the 120mt of global hydrogen production will need electrolysers in some capacity (predominantly ammonia production and hydrotreating petroleum, and then also ramped-up steel DRI and non-petcoke cement production) if deep decarbonsation is fully committed to, but we're not there and I don't think we will be for decades -> first off we'll need to focus on getting to a position of almost abundant, cheap, green electrons from renewables in the system, and then green hydrogen electrolysers may be a viable economic product, since ~80% of the cost of green hydrogen is the price of that power. Until then, a hydrogen economy, in a form will not be green, therefore not be a safe place for investment in my opinion. I will keep a strong eye on government posturings in the mean time related to hydrogen - note also the current hydrogen lobby groups... hydrogen Europe, hydrogen council... they are fossil fuel backed lobby groups with the exxon-funded FTI-consulting firm so we shouldn't be fooled by thinking any push for policy they make will not just be in the interests of the O&G players, which means either grey or if forced (and paid for by the taxpayer), blue hydrogen.
For now if my investment relies on democratic action, I'd rather put it somewhere less risky. Sounds a bit defeatesf in the net-zero agenda but it's the reality from my perspective for now anyways.
It's a tough one, because it really hinges on a hydrogen economy being realised. Instead of just the necessary industries adopting a greened version of hydrogen production (ammonia, methanol, petroleum refining) they'll be the biggies. If pin the hope of demand coming from FCEV, aviation, shipping, domestic heating - all areas which don't have the strongest economic cases for switching to hydrogen over other alternatives ... the demand for hydrogen won't dramatically increase and it'll be down to the current uses of hydrogen to adopt electrolyses, which although we have players like shell looking fondly on ITM and ammonia producers thinking about green hydrogen projects and small pilots here and there for refining... I don[t see them ever putting an order on the gigawatt scale for electrolyses unless it is mandated / a carbon pricing necessity -
this means it'll be grey for a long time, then if anything, it'll be blue, and then when there is near abundant, cheap, green electrons in the system ... it'll be green hydrogen, I think that timeline is on the decades scale, not anywhere near the next few. I hope this pathway can happen fast, but I'm not optimistic given the costing of electrolyser tech and the business of O&G companies to want to produce and sell natural gas, at whatever the cost to the environment (unless mandated otherwise).
Thanks toneman, McBoatFace and Philip. The reference to Halma, Spiral and Renishaw are interesting - I'm unfamiliar with these manufactures, I'll check them out thanks, so perhaps long term an optimised margin higher than 10% may be reasonable but I'm not sure just yet. Maybe once they are cashflow positive we might get a bit more visibility of their real margins, once they don't derive revenue from grants and research funding etc and it's pure unit sales driving that revenue.
I would challenge you numbers on using 800,000 per MW as a basis, given if that was the case for large scale then their would be a demand for people to pay top dollar for hydrogen systems at 800,000 and they wouldn't only have small mini projects lined up - I think for the business to actually bring in the revenue and sell the necessary units to warrant the supply, they would need to be selling at much cheaper per unit especially if there are to be used in any system in power markets (given the inefficient costing for acting as storage or direct power generation (perhaps from imported h2). Blue is the hydrogen being pushed really by the hydrogen economy narrative unfortunately, and I that will be in the interests of the O&G players too. If they can get the taxpayer to pay for project and carbon capture in the early days then great from their perspective... claim the "green" points, sell more NG to use in SMR for blue hydrogen, get subsidy for the carbon capture and carry on as you were... a lifeline for O&G, bad for the planet :(
Appreciate the commentary on the domestic heating dilemma vs heat pumps. although realistically, we would need a new gas grid if we want to switch to hydrogen so that'll be a whole lot more system cost vs expansion of electric grid (great if you're a utility with a rate payer model), residential solar + heat pumps. It's really the system cost that is the comparison because ultimately that cost falls on the consumer just as much as the boiler vs heat pump choice individually.
Edit - that 50k figure should read 50m aha
Thanks toneman,
the way I see it is this... ITM are targeting for their gigafactory production to ramp up, perhaps full production in the mid-2020s. Now, also with their scale-up they anticipate aiming for a price per unit decrease from around £800,000 per MW to around £500,000 per MW.
We can maybe discuss also how much of their expected full priced revenue will come from sale of units vs. sale of engineering services to install and maintain units.. but let's for now say that everything else is small, negligible in comparison to unit sales revenue in the future... (as the EPC will mostly be Linde for large scale projects going forward from what I understand).
Okay so full ramped up production of an 1000MW factory -> at £500,000/MW -> a nice half billion in revenue per year.
I admit I don't know what the figure should be, but for argument, let's say they achieve a 10% margin on that revenue that actually follows through to Ebitda. I imagine 10% would actually be quite high given the complexity of the the engineering and the quality assurance required for manufacturing defect free and resilient PEM electrolyses... so that'll eat a lot into the margin I imagine too. but let's say 10%. so for a gigafactory that is £50k in ebitda... for it to be valued at £5 bill market cap that's a EV/EBITDA multiple of 100 times. to me that is not reasonable multiple for any manufacturing firm, regardless of how much commitment a body like the EU may have to installing hydrogen systems.
For current SP of around 500p that's a cap of £2.7b right. So taking the same assumptions as above, for 10% margin. ITM is trading at something like an EV/EBITDA multiple of 54 ... and that is taking the full capacity production number that won't be reached for several years of 1000MW of 1GW so really assuming they do max out their gigafactory production and have actual sales. The share price in my opinion is running on fumes at the moment and has been for a while, and it is only propped up by the potential spot ITM may have in a future hydrogen economy. Which, I do not believe will be realised
For ref. I work in the energy industry as a consultant, including green hydrogen integration/feasibility projects... and the economics does not work in the favour of anything other than either grey or (more likely to be supported by governments and O&G lobbyists which are the ones with the persuasion power *sigh :(*), blue hydrogen.
Could you share your thinking on the £5bn per Gigafactory to compare where we differ? thanks
https://uk.finance.yahoo.com/news/itm-power-share-price-pulled-115023243.html
SP unfortunately running on fumes and I think will continue to collapse to sub £1b market cap within a few maybe 6 months (guess, not immediately but strongly think it won't be years to reach it). The story-backed paper that is ITM isn't strong enough for me to hold unless it's a lonnng game, I'm talking they have multiple Gigafactories to support their current valuation...
So unless there is a big change in policy / subsidy or a another unicorn event where the hydrogen economy fantasy gets a big boost - ITM SP will continue to tank in my opinion.
If you play the day trading game there's so much volatility to be capitalized on probably but the general direction is sloping down.
I rode the wave up and now see the writing on the wall, sorry guys.
@bobthetrain
Oh dear oh dear my friend ahah solar and wind are the two technologies that will enable a company like ITM to flourish ?? green hydrogen cannot succeed without them aha (if the drive is decarbonisation)
The hype hasn't faltered yet, don't think investods have gotten wise to the hype element yet so reckon SP will recover by week end IMO
Fully agree about the bubble.
Valuation far removed from the fundamentals. I work in the energy industry and green hydrogen is a key for decarbonising many existing sectors such as refining and pet Chen's and steel / cement, Iron DRI.
Other uses of hydrogen such as decarbonising domestic best or fuel cell passenger vehicles, liquid hydrogen or ammonia shipping etc. aren't gonna go anywhere because the electrified or bio/renewable fuel alternatives will continue to beat out hydrogen for at least a decade.
This decade will be a pinical year for electrolyser technology deployment expansion... the term gigafactoey used in an electryloser context is evidence enough for that, besides also the government usherings to invest in green tech.
Itm has real potential for the existing 70Mt H2 production globally, but only at a fossil beating price point (including heavy carbon taxes for pushing out coal gasification or SMR production methods with NG) but that is a way off as it relies on the cost curves of several technologies (wind, solar, electrolysers).
With that being said, I believe itm and ceres are definitely in a bubble right now, as the demand for the product they sell does not exist yet (green hydrogen 3-4x cost of existing production routes as low as ~$1.50 /kg ) and the new markets proposed in a hydrogen company utopia may never materialize in any grand scale. Just glance at BEV Vs FCEV options to understand why batteries will win out wherever they can.
Defo a hold on these stocks until the bubble bursts, because the stock cannot stay far removed from its fundamentals forever, and the accelerated growth of these companies is still very small numbers.
Thanks, first time posting, followed this chat for a while.