Fossil parity for electrolysis and fueling stations

Bjørn Simonsen

VICE PRESIDENT MARKET DEVELOPMENT AND PUBLIC RELATIONS

bjorn.simonsen@nelhydrogen.com

Nel Hydrogen

Compact Hydrogen fueling stationsHydrogen fueling stations capable of fueling any kind ofvehicle. World’s most compact – simple to integrate withother fuels & standardized

Alkaline and PEM electrolysersConverting water and electricity to hydrogen and oxygen – for industry and energy purposes

• Hydrogen technology company listed on the Oslo Stock Exchange (NEL.OSE) w/18,000 shareholders

• Manufacturing facilities in Norway, Denmark and U.S.

• Significant foothold in fast-growing markets with several breakthrough contracts

• World’s largest electrolyser manufacturer, with >3500 units delivered in 80+ countries since 1927

• World leading manufacturer of hydrogen fueling stations, with 50 H2Station® units delivered to 9 countries

2

3

Chemical vapor deposition

Thermal processing

Chemical Industry

Power IndustrySteel Industry

Food Industry

Glass Industry

Polysilicon Industry

Laboratories

Life support

CONVENTIONAL INDUSTRY MOBILITY POWER-TO-X

• Conventional industries represents the “traditional” hydrogen markets

• Steady demand for hydrogen

• Key market going forward – both within hydrogen production and fueling/dispensing

• Heavy duty sector developing faster than anticipated – hydrogen now relevant fuel for all forms of mobility

• Decreasing cost of renewables & electrolyzers is accelerating market

• Vast opportunities within existing & new sectors

Mobility(transportation)

Power-To-X(renewable hydrogen)

Steady growing market Markets expected to see fast growth going forward

Hydrogen is expanding its areas of application

Large potential for growth, driven by increasing focus on climate and renewable energy, decreasing electricity

prices and decreasing electrolyser capex

4

Ammonia Refineries Methanol Other

Global hydrogen market, by end-use:

Special focus on green ammonia & refineries, accounting for ~80% of the market

Market potential for electrolysis within the existing industry sector alone is 400 – 600 GW (~20 B$/year)

56 Mton/year

Large opportunities for electrolysis within existing hydrogen market – only 1% from water electrolysis today

5

Hydrogen is becoming relevant in all forms of mobility

FOR

KLI

FTTR

AIN

FAST

FER

RY

BU

S

DEL

IVER

Y TR

UC

K

CR

UIS

E SH

IP

TRU

CK

CA

R F

ERR

Y

• Hydrogen has potential to become a preferred fuel alternative in the future:

− True zero emission from production to use

− Can beat fossil fuel applications on a TCO-basis

− Low weight (compared to e.g. batteries), especially relevant in the heavy duty segment

− Fast recharging (fueling) time

− Long driving range

− Low/no need for electric grid upgrades

− Not dependent on rare metals (e.g. cobalt, lithium)

− Global standards for fueling established

− Same quality fuel used for small to large applications

• Initial development highly affected by policies and subsidies

PA

SSEN

GER

CA

R

6

AM

MO

NIA

REF

INER

Y

MET

HA

NO

L

TITA

NIU

M O

XID

E

STEE

L

REM

OTE

PO

WER

GA

S P

IPEL

INES

ENER

GY

EXP

OR

T

FISH

FAR

MIN

G

• Wide variety of existing and new markets where electrolysis can play a major role

– Exchanging fossil hydrogen with renewable hydrogen (f.ex fertilizer)

– Exchanging coal with renewable hydrogen (f.ex steel manufacturing)

– Oxygen & heat adds value

• Electrolysis “bridges the gap” between the power and industry sector, increasing the value of electrons

• Ability to adapt to diverse and intermittent renewable energy sources becoming increasingly important

Power

H2

Power-To-Xapplication

Decreasing cost of renewable hydrogen (and oxygen) opening up new business areas

7

$ 135$ 124

$ 71$ 72 $ 70$ 59 $ 55 $ 47 $ 45 $ 42

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

$ 359

$ 248

$ 157

$ 125

$ 98$ 79

$ 64 $ 55 $ 50 $ 43

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Wind and solar is on a trajectory to become the cheapest form of electricity

Wind LCOE Unsubsidised levelized cost of energy ($/MWh) 2)

Solar PV LCOEUnsubsidised levelized cost of energy ($/MWh)2)

• With falling LCOE1) of wind and solar prices,

renewable hydrogen follows the same path,

as electrical power constitute 70-80% of the

total cost of hydrogen

• Record low auction prices for solar PV and

wind has seen prices as low as $17.7/MWh

and $17.86/MWh respectively (as of 2017) 3)

• Prices are expected to drop further, LCOE of

solar PV and onshore wind are expected to

fall by 71% and 58% respectively by 20504)

• At $50/MWh renewable hydrogen is

becoming competitive with fossil fuels and

at $30/MWh renewable hydrogen is

becoming competitive in most markets

Note: 1) LCOE = Levelised cost of energy, which is a way of calculating the total production cost of building and operating an electricity-generating plantSource: 2) Lazard; Renewables Now, 3) IRENA (International Renewable Energy Agency); 4) BloombergNEF New Energy Outlook 2018

Cost of wind and solar has dropped by 69% and 88% during the last decade – renewable hydrogen following the same path

8

200

300

400

500

600

700

800

historic under construction future scale up

Large scale natural gas reformers Nel large scale alkaline electrolysis

$/kW

SMR w/o CCS – capex range

• SMR – “steam methane reforming” is dominating

hydrogen production today, using natural gas and steam

• Nel is establishing a new manufacturing plant targeting

a >40% cost reduction

• Expect to see further reduction in capex with increase

production volume, and further size scaling of products

• Nel targets capex to drop below SMR over time

• Electrolysis expected to be the preferred production

method if opex (i.e. power prices) are low enough (or

at parity) with the alternative production methods

(see next page)

Hydrogen production - capex price

Fossil parity at $500/kW

capex level

Source: Nel

With current ongoing expansion

Historic Future large scale(New products/ technology development)

Growth in renewable hydrogen will accelerate with reduced capex for electrolysers

9

• Opex accounts for ~75% while capex represents

25% of the total cost of hydrogen

• At or below 5¢ per kWh, renewable hydrogen

can be a competitive with fossil fuels

– Local price of fossil fuels, taxation schemes &

utilization rate of electrolyzer and fueling

station important factors

• At 3¢ per kWh, renewable hydrogen is reaching

fossil parity for industrial uses

– Local prices of natural gas, taxation schemes

& distance to market important factors

• Centralised production can use low cost

renewable energy and achieve scale advantages

while onsite production eliminates costs for

distributionSolar PV Onshore wind Offshore wind

5.45.0

2.62.3

1.9 1.8

5.04.5

3.0

1.8

7.3

6.0

4.9

FOSSIL PARITY: INDUSTRY

FOSSIL PARITY: FUEL

Overview of recent power purchase agreements [¢/kWh]

Renewable energy already enables fossil parity for hydrogen - expect price to decrease further in the long-term

Source: Lazard

…and by outcompeting fossil alternatives on opex

Scaling up fueling station and electrolyzer manufacturing

Establishing hydrogen production & fueling infrastructure for big trucks

• Nel awarded contract awarded as part of Nikola’s development of a hydrogen

station infrastructure in the U.S. – target of 800+ stations by 2028

• Multi-billion NOK electrolyzer and fueling station contract, to be deployed

from 2020 – largest electrolyzer contract ever awarded

• Electrolyzer stacks to be manufactured in Norway, fueling equipment in

Denmark - supporting components, including frames, pipes and vessels to be

sourced locally in the U.S.

• 12 B$ in pre-orders, recently raised 200+ M$, company valuation of 1.1 B$

11

Project examples

Contract for delivery of up to 1 GW of electrolysis & associated fueling stations

Yara & Nel initiates Green Fertilizer project

• Target to develop next generation green(renewable) ammonia and

fertilizer production

• Will utilize Nel’s next generation electrolyzer, developed in Norway

• Technology tailored for large scale hydrogen production w/direct

connection to renewables

• Ammonia production accounts for >50% of total hydrogen market,

>95% fossil energy based

• ~400 GW electrolysis market opportunity, equal to NOK 1200 billion

12

Nel & Yara awarded grant from the PILOT-E scheme for development of green fertilizer project

Officially opened large-scale H2Station production facility in Denmark

• First production line in the world for hydrogen stations

• Serial production according to lean principles represents

significant improvements in existing production efficiency

• Hydrogen compression, cooling and gas control assembled onto

one skid

• Allows both CE- and UL-certified stations off the line

• H2Stations for Europe, US and Asia running on same

production line. 70MPa and 35MPa fueling option

• Production-line in action can be seen via link to the right

13

Annual nameplate production capacity of up to 300 H2Stations

https://www.youtube.com/watch?v=7YxjytkkNi4

Large scale electrolyzer concept developed on request from industrial client (400 MW plant)

14

Constructing world’s largest electrolyzer manufacturing plant

• Highly automated and designed according to lean manufacturing principles

• Industrial scale production, the most efficient electrolyzers in the market at

a game changing cost

• Accommodating the multi-billion NOK order from Nikola

• Enables electrolyzers to be at cost parity with steam methane reformers

• Helping renewale hydrogen reach fossil parity

• Manufacturing plant will be constructed as an extension of the current

facility at Notodden, Norway

• Operational in 2020 with ramp-up aligned to customer requirements

15

Name plate capacity of 360 MW per year, more than 10x current annual production

New facility located right next to existing plant

New plant layout ready

Fossil parity – example from Norway

Fossil parity on fuel achievable in Norway today

• Regional hydrogen production, use of low cost renewable energy

• Possible to integrate with central heating and grid balancing services

• Parity with taxed diesel possible already from 4-8 ton per day

0.40 NOK/kWh5 JPY/kWh

25 NOK/kg325 JPY/kg

+ 13 NOK/kg175 JPY/kg

11 NOK/kg145 JPY/kg

+ = 50 NOK/kg645 JPY/kg

Large scale central production

20 MW 8 tons per day

< 500 $/kW

High pressuredistribution

1 – 1.5 ton/truck(500/700 bar)

Efficient dispensing

1 M€/station unmanned

100% availability

17

Centralized production close to power or heat source enables business case

Hydrogen infrastructure initiative in Norway is currently being expanded

Establishing centralized, large scale production sites with local distribution, serving multiple mobility needs

18

Green hydrogen Production:

• 8 – 24 tons / day from Hydro/Wind

Efficient hydrogen distribution:

• 1,100-1,500 kg pr. truckload

Efficient hydrogen distribution:

• 2.5 hour travel distance for optimal distribution cost

• H2Station capacity can easily be added or expanded

• Fuel with 100% renewable hydrogen at attractive price

Radius of circle corresponds to ~2.5 hour driving

Electrolyzer at optimal site for electricity heat grid integration

Number One by Nature