Energy Transition Challenges and Trends: Paddy Padmanathan, ACWA Power


Listen to it on Spotify:


This blog is an Innovation Insights video podcast transcript. In this episode of Innovation Insights, Emerald’s Partner Christoph Frei discusses Energy Transition Challenges and Trends. Click here to watch or listen.



Christoph Frei: It’s now my great pleasure to introduce Paddy Padmanathan. He is the CEO of ACWA Power, and ACWA Power is probably best known for delivering among the cheapest, most cost-effective large-scale solar plants around the world, beating one record after the other. ACWA does also de-cell projects, has just announced yet another project in that space as well. But particularly relevant for this session, ACWA has, a couple of weeks back, made an announcement of a five billion $5,000,000,000 Green Ammonia Project in Saudi Arabia. And we obviously wanna learn much more about this specific project, and the green ammonia and Hydrogen context there. With that, please welcome Paddy Padmanathan. Paddy, please tell us more about this NEOM project, and some of the take off market studies, for your green ammonia and then we’ll follow up with further questions. Paddy please.

Paddy Padmanathan: Thank you very much Christoph. Thank you very much for that very generous introduction. I am privileged to lead a company that has been very much in the forefront of driving the cost of renewable energy down. And in fact that is the entry point or the impetus for this Green Ammonia Project. So, I think all of you know very well that Hydrogen is not something new. There is a lot of Hydrogen that is already produced and used, particularly in fertilizer production, but also in oil refining and all sorts of other uses. But all of that has been to date, produced using the steam reforming process, by burning fossil fuels. But we have always known from our, sort of, chemistry lessons lesson, sorry… In school, that by sticking two electrodes into a pot of water, we can produce… We can break the Hydrogen and Oxygen bond of water and produce Hydrogen. But the issue there, is the amount of electricity that is needed to do that. So, it’s a very electricity-intensive process. And as long as electricity was very expensive, and in fact fossil fuel produced electricity turns out, now compared to the renewables that we are able to deliver at, is very expensive. This didn’t make sense. Now that we are able to start delivering in certain parts of the world, where the resource is available, where land is abundant, credit worthiness is very well established, solar and wind at prices less than two, one and a half cents per kilowatt hour. These are numbers that you should be comparing with five and six, as a kind of norm, right? All of a sudden, this electricity-intensive process, starts to become attractive. So, the NEOM Neon project is… Well, there are many that has been announced, this is one of the many first big scale plants. It’s not about being the first, let’s wait and see, but we are working very feverishly away, at making sure that we go into construction early next year, and I think we are very confident we can. So, it’s a five billion dollar project, that uses the fantastic renewable resources that are available in the Kingdom of Saudi Arabia, both wind and solar. So, sun beating through the day, for about nine hours, and then wind also blowing very strongly at night. So, we are able to couple both, with a bit of battery to buffer it, that then allows us, using the electrolysis process to produce green Hydrogen. Because green Hydrogen is… For the moment anyway, not that easy to kinda transport over very long distances, across the oceans, we’re gonna convert it to ammonia. So, basically ammonia is the energy carrier. Liquid ammonia, put into ships, and ship it initially towards the Far East. So, the project will produce 650 tons per day, of Hydrogen. Just to give context to that, we’ll be utilizing 400 megawatts of renewable energy to do that. And if we were to use all the Hydrogen to power vehicles, which is probably where it’ll go in the initial stage, simply because that is the established industry today, that’s what is attracting attention and the need. This amount of ammonia will provide for 700,000 vehicles. So, if you we kinda continue to power that, and produce that, that will take out three million tons of Carbon Dioxide per year. It’s a kind of one significant project. But what is to me more exciting, is that it then enables a pathway. It shows, that all of a sudden this is real, this is viable, this is obviously doable from a financially sub-sustaining point of view, because it’s an entire… It’s not a charity project, it’s an entirely privately funded project. Three partners, Air Products, very capable, they’re the leading Hydrogen producer of the world today, using the steam reforming process. And NEOM, visionary, future… It’s not a city, a region in the North end of Saudi Arabia. So, these… So, we’ve come into a one-third, one-third partnership. ACWA Power, NEOM, and Air Products, to do this. And this will be a pathway, and I think the easy one that everybody now starts to recognize is the Hydrogen vehicles, Hydrogen fuel fueled vehicles. Because they’re already there, starting to be operated, and so on and so forth. But to me, what is really also more exciting, is that there is a segment… A significant amount of Carbon is emitted by a bunch of industrial uses, that we really don’t have any other solutions for right now, except Hydrogen. Steel making, fertilizer making, so even in agriculture, food, there’s aluminum, cement, there’s a whole range of industrial processes, where Hydrogen can become the heat provider, or the reducing agent…

Christoph: Directly now substituting fossil fuels, coke, coal, and that, I think is much more exciting, and it’s all then to do with cost competitiveness. Paddy, you say it’s some of the key figures, four gigawatts of renewable power, 650 tons of hydrogen per day. You have that transformed into green ammonia because it’s easier to transport. You used the largest chemical supply chain ammonia, the largest traded chemical. So, you don’t need to invest in any infrastructure, so building your infrastructure close to existing hops for ammonia is obviously part of the trick here. You deliver it with potentially for it’s utilization in the transport space, but you clearly say there’s obviously multiple other uses where… And you refer to price, we come back to the price question, but before that, in terms of entry barriers, where do you see the demand that directly is interested in green ammonia to you. You mentioned transport but there’s obviously others as well, and that has low entry barriers in terms of existing infrastructure. Where would you expect your first clients to be, in which segments?

Paddy: So, the lowest entry barrier is of course transportation. Not only because the vehicles are there, the buses are starting to be produced and so on and so forth, so there is a supply there on that side of it, and the demand is there. And there is the carbon pricing in an inverted way through subsidized, some subsidy mechanisms is being provided in, whether it’s in California, whether it’s in Korea, whether it’s in Japan, different places. Okay, so that obviously is the easiest entry point. For me, very close behind it has got to be steel, because… Okay, so we do now need to talk about cost. So, look, have you, you’re only… If we’re able to produce electricity at less than two cents, and as you start to produce hydrolysis at scale for these very large brands, electrolytes, sorry. And these are things that have been made in small modules before, but as we start to produce more at scale, we are very confident that the price of hydrogen can come down to definitely below $2.5 a kilo. Compare it to, $1 a kilo is the kind of price at which we can produce hydrogen using the steam reforming process using fossil fuels. Now, there is no carbon pricing, I’m not gonna waste my time waiting for carbon pricing, so we’ve got to come down to $1. In my view, that is possible, I think it is possible, faster than 2030. But for steel, I think we can put in at $2 and still compete against coke. It is a different process for raw steel, converting thick iron to steel. But to the extent, that new capacity, some of the older plants have to be mothballed, they’re inefficient and so on. New capacity needs to be built. They will be built using these new processes, and you can inject hydrogen straight away and start to produce steel at about $500, $450 to $500 a ton, which then starts to be competitive with doing it the polluting way.

Christoph: So cost, you’re saying 1.5 cents, that’s what you have done in other places already, 1.5 cents per kilowatt, everyone assumes about the 2000-hour operations purely renewable for the electrolyser. Then you’re saying that we getting the hour of money of $2 to $3, $2.5 per kilogram of hydrogen and obviously that would allow for steel almost… If you get even to the one we would have competitive situation for steel production, but it’s also in the OR of magnitude. Obviously, that is interesting for transport $2 to $3 per kilogram of hydrogen would correspond to 50 to 80 cents including gasoline, and you see that market obviously responding right away, and then still, what other uses do you have in mind? Apart…

Paddy: The next obvious immediate use is ammonia itself for fertilizer production, you know this much. So, definitely we should be targeting converting the 80 million tons of hydrogen that we produced today using steam reforming process, which pretty much goes for, exclusively almost, for oil refining, as well as for fertilizing production. That can get dealt with fairly quickly, thereafter. Look, the strategy, as we see it, the transport will give us enormous amount of volume, so if you look at the market that is immediately available, they can absorb 10 neon projects. Now, use the transport market, and the minute you start doing three, four, five of the neon size projects, you’re gonna be driving the electrolyser cost down. So what is the cost at the high level, something like 70% of the cost of producing green hydrogen is electricity, the rest of the cost is the CapEx of and the OpEx of the plant itself, the electrolyser, and all the other gabions that go around it. Now this, you need to start… And also, obviously, the financing costs for all these CaPex. So long as we remain in this very low interest rate environment, which I think we can confidently say we’re gonna be for the next decade, keep focusing on bringing the cost of electrolyser down. So within about five or six neon projects, we will start now competing shoulder to shoulder with the other way of producing hydrogen. So going to aluminum, cement, fertilizer. And also then start to look at… There is a whole lot of smaller uses like food, chemicals, exotic… And soon there after, of course, synthetic fuel.

Christoph: You mentioned, basically, all the hard debates and this one exception, one that you haven’t mentioned. You haven’t mentioned… What could also add shipping obviously, but the one you have mentioned is coal. We know that there’s about 700 coal plants on the construction, they will be around for the next is it 40 to 60 years somewhere, and if you do not obviously provide solutions in that space, then the de-carb agenda will suffer from that. And now that Japan has done pilots or is in the process of doing pilots in the coal, substituting ammonia to coal, do you see demand in that’s a segment as well for you ammonia?

Paddy: Yes, yes, yes. So no, that is an important one, you’re absolutely… Thank you for bringing that back, because that is a huge segment, right? Yes, I think so there is an opportunity there for co-firing and for starting to bring down the coal consumption even in a coal plant and reduce the emissions, yes. Not as beneficial as sort of getting rid of the coal plant all together, but the reality is we are stuck with coal plants for the next 25, 30 years, yeah, you’re right. So there is an opportunity there.

Christoph: And when it comes to the regionals that you have mentioned, particularly that the interest is coming from far east at this stage, there has been a lot of discussion in Europe, in France, Germany, particular about, around hydrogen but it seems to me from what we have heard so far, most of discussion has gone into, what can be produced actually in Europe? How do you view the local production versus international trade? As part of future the pathway into hydrogen?

Paddy: Interesting question, right? Now to be discussing simply in this era of all the geopolitical tensions and all the rest of it, right? But the reaction post COVID or through the COVID, sort of, becoming much more local, focusing on what you can do yourself and so on, so forth. But the reality is, energy is such a basic input to everything that we do, ultimately, we will go back to where is it that we can most efficiently produce it, take it into our economies, utilize that for the multiplier effect. Don’t get so tangled up in, I’ve gotta produce energy also at home. Okay, now having said that, so Europe, I’m very convinced will pioneer in the way through the use of hydrogen, I have no doubt about it, but look at the problem, the challenge for Europe is gonna be, so if I can produce electricity at one and a half cents or less, in fact in Morocco… And in Europe, yes, you have fantastic offshore wind. But sorry, It’s still gonna be much more than that. It’s never gonna come down… Never! Okay, I’m the last person to say that, but to 1.5 cents per kilowatt hour, so if I can do that in Morocco, come on, the logic is, let’s produce masses of hydrogen, pipe it across into the European network. That’s the way it’s gonna go.

Christoph: Thank you very much, Paddy Padmanathan. I think we are at the end of this interview, unfortunately timing-wise, but I think you have left us a few very strong messages. You have said, build stuff where there’s abundance and where you can cheaply produce renewable energy, be that from sun or from wind. Make sure you’re close to supply chain and make sure that your customer base is where the hard debates are, and you have covered or you’re looking at all the hard to abates. And in the end, I think you’re saying, in the end, there must be a globally traded commodity here because simply the production cost with huge different may not be the cheapest. Thank you very much, Paddy. This was an excellent contribution here to our European Venture Fair.

Paddy: My pleasure, I’m so delighted to have joined you. Thank you for the opportunity.