Our Investment Thesis:
The threat of climate change looms large over countries and industries alike, worldwide. Greenhouse gases from human activities are the most significant driver of observed climate change since the mid-20th century. To prevent adverse consequences from climate change, it is imperative that we rapidly reduce global greenhouse gas (GHG) emissions. The world emits around 50 bn tonnes of GHGs each year [measured in carbon dioxide equivalents (CO2eq)]. ~50% of these emissions come from energy generation (commercial and residential use), energy use in industry and direct industrial use (iron and steel, cement, chemicals, petrochemical, paper and other industries). These emission producing industries need to make concentrated efforts towards decarbonization, providing a huge opportunity for emission reductions through energy transition technologies. Efforts such as increasing the renewable mix in energy generation, focus on energy efficiency and improvements in energy storage have been strong drivers towards an accelerated energy transition. While this transition is underway, Hydrogen (H2) is fast emerging as a key protagonist in the story of energy transition and decarbonization of hard to abate industries. Hydrogen, a versatile, clean, and safe energy carrier, can be used as fuel for power or in industry as energy feedstock. H2 is a zero carbon energy carrier as it produces zero harmful GHG emissions at point of use.
The use cases for Hydrogen exist across industries, with significant potential for application in industries like petroleum refining, fertilizer production, glass purification, fuel cell technology, energy storage, steel manufacturing and a few more. It is estimated that hydrogen demand in India could grow more than fourfold by 2050, representing almost 10% of global hydrogen demand. While investments are required across the hydrogen value chain, we believe solving for sustainable and cost effective production of the molecule itself will be key in leading the transition.
Let’s decode this further.
Globally, 100 mn tonnes of hydrogen is annually produced today. India itself produces 6-7 mn tonnes of hydrogen each year. 96% of this hydrogen comes from natural gas and coal, with 900 mn tonnes of CO2 emissions produced in the process.
Currently, cost of green hydrogen production (levelized cost of hydrogen) using prevalent electrolyser technologies stands at USD 6-10/kg, whereas grey hydrogen is much cheaper at USD 1.5 – 2/Kg. There are two components largely affecting this cost – capex i.e. the electrolyzer and opex i.e. energy cost to run the electrolyzer. During our research we observed that reduction in the price of green hydrogen in India in past few years was driven by the reduced cost of renewable electricity (e.g., solar electricity has gone down by more than 80% over the last decade to INR 2/kWh) whereas, the cost of electrolyzer has only decreased 2-5% over the last decade. The high capex costs are due to the use of rare earth metals in the electrocatalyst and the high cost of the fragile membrane (and the cost of replacement of the membrane, consequently leading to high TCO) used in the incumbent membrane electrolyser technologies. We believe product innovations related to the electrolyzer itself are key to narrowing the cost differential between grey and green hydrogen. Tech innovations for the electrolyser coupled with existing reduced renewable energy cost will help India increase domestic consumption and has the potential to make it a global supplier of green H2.
The electrolyser capacity in the country is expected to grow, domestically, to 20 GW by 2030, while the export potential is estimated at 95, wherein lies the promise of a USD 20 bn opportunity for indigenous manufacturing of electrolysers. This, aided by large, policy level interventions like the National Green Hydrogen Mission with an initial outlay of INR 19K cr, is a welcome step towards making India energy independent and kickstart the decarbonisation of major industries.
Why we chose Newtrace?
Newtrace, cofounded by Prasanta Sarkar and Rochan Sinha, is solving for reduction in both the electrolyzer capex and opex cost using its novel technology. Further, Newtrace’s technology utilizes abundantly available metal-based electrocatalyst and completely removes dependency on rare earth metals (used in incumbent technologies), thus reducing cost and supply chain dependencies. This is expected to reduce material as well as maintenance costs. Their technology, which has gained commercial approval in the form of pilot deployment contracts from large refineries, is modular and can be customized as per end-use requirements. We were impressed with the solid technical background of the founders and their laser sharp focus on making the lowest cost electrolysers.
Impact Thesis: Electrolysis is a clean output technology. Every Kg of H2 produced by an electrolyzer reduces 10 Kg equivalent of CO2 emissions. Newtrace’s innovations in the electrolyser design further improve the sustainability and scalability of this technology by reducing the dependence on rare earth metals and eliminating the need for production and replacement of critical components.
With Newtrace, we see ourselves aligned in emboldening entrepreneurs to chase large problems worth solving. The climate change issue is perhaps the most challenging one of our times. Our partnership with the Newtrace team has given us an incredible opportunity in disrupting the hydrogen industry with the power of technology and meaningfully contributing towards our climate change goals.