California's governor wanted to take a big step toward making the state a more environmentally-friendly place. And he did so by laying out a plan for the state to make better use of hydrogen.
“This is the future of California and the future of our environmental protection,” the governor said as he issued an executive order calling for the state to prepare its infrastructure and develop hydrogen powered cars, buses and trucks.
But the governor in question isn’t the state’s current chief executive, Gavin Newsom. It was Arnold Schwarzenegger, the Republican actor-turned-politician who served two terms in office from 2003 to 2011. With much fanfare, Schwarzenegger laid out his hydrogen ambitions in 2004, nearly two decades before Newsom would also pitch a hydrogen-filled future for California.
But Newsom is thinking bigger than just roadways. The Democrat, who is in his second term, called for the development of a hydrogen economy to support the state’s plans for a renewable energy future.
“California is all in on clean, renewable hydrogen – an essential aspect of how we’ll power our future and cut pollution,” Newsom said in early August. “This strategy will lay out the pathway for building a robust hydrogen market to help us fully embrace this source of clean energy.”
It’s a strategy that also has Silicon Valley energy entrepreneurs excited for what’s to come.
“I don’t think you’re going to recognize the California landscape five years from now,” said Marty Neese, CEO of Verdagy Inc., a green hydrogen technology developer in Moss Landing. California has “always been the innovation frontier, and the boldness and courage to just back it up with action proves it,” Neese said. “We’re really encouraged by the direction, and we have the wind to our back and we’re ready to fly.”
Verdagy
How will California’s plan look?
What Newsom wants to do is to take an “all-of-government approach” toward hydrogen, which is seen as a clean alternative to methane, or natural gas. Hydrogen is naturally occurring and is everywhere — it’s used to refine petroleum, produce fertilizers and process foods.
“California is all in on clean, renewable hydrogen – an essential aspect of how we’ll power our future and cut pollution,” Newsom said when the program was announced. “This strategy will lay out the pathway for building a robust hydrogen market to help us fully embrace this source of clean energy.”
Schwarzenegger saw it mostly as an alternative way to power vehicles and reduce greenhouse gas emissions. The former governor’s hydrogen plan did not go as planned, which is evident by the prevalence of electric-powered vehicles dominating the zero-emission market in California.
For his part, Newsom has asked the state Office of Business and Economic Development to put together a development strategy for the state’s hydrogen market. According to state officials, the strategy will closely model that of the Zero-Emission Vehicle (ZEV) Market Development Strategy, which calls for all new vehicles sold in the state to be 100% zero-emission by 2035.
Angelina Galiteva, the CEO of the Alliance for Renewable Clean Hydrogen Energy Systems (ARCHES) — a public-private partnership designed to accelerate hydrogen’s contribution in the state — said following the ZEV strategy is smart because it builds on pathways that already exist.
“We have a ways to go in terms of creating the hydrogen pipeline system,” Galiteva said. “We do have existing pipelines that can be extended, and we have existing pipelines that can be retrofitted. So you could have economies of scale where you’re actually combining two activities in one.”
While ZEV is focused on vehicles, Galiteva said the state’s hydrogen plan will focus on all industries.
California is in the running to become a federally funded hydrogen hub under an $8 billion federal program that was passed as part of President Joe Biden’s 2021 infrastructure effort. That law said the federal government would designate at least six hydrogen hubs across the country, with each receiving up to $1.25 billion in funding.
Galiteva said the biggest hurdle any hub will have to face is breaking into industries like trucking and aviation.
“We need a fuel, and we need a carbon-free fuel. And there are sectors of the economy that are going to need to rely on fuel,” she said. “So cracking that nut and making sure that we can decarbonize those heavy-duty transportation corridors, is going to be extremely important. We’re still at a phase of where we need to be working to ensure that we can produce enough hydrogen.”
‘The need is there’
Although prior hydrogen efforts did not take off as expected, Galiteva said now is the time for companies in the hydrogen space to make their way to California.
Newsom’s approach “brings assurance that there’s going to be a market, there’s going to be a need,” Galiteva said. “I think the biggest benefit that we have from the systems approach is that we have identified the need and the opportunities for offtake, which then gives security for the companies. ... The opportunities are there (in California). The need is there.”
Neese said that establishing and keeping his company Verdagy in California was an easy decision. He’d worked for sustainability companies from Norway to Malaysia, and said there’s no better ecosystem to develop climate technology than that in California.
In early August, Verdagy announced that it had raised a $73 million Series B funding round to continue developing its industrial-scale electrolyzer, a device that separates hydrogen and oxygen from water to produce green hydrogen — hydrogen produced without the use of fossil fuels.
To double down on its efforts and jump on the hydrogen hype, the company expanded its operations to a 100,000-square-foot facility in Newark. Operations at the facility are expected to serve as its base for large-scale production starting in the first quarter of the new year, the company said. Verdagy hopes its technology will help bring down the cost of hydrogen from $5 a kilogram to $2 or less a kilogram by the end of the decade.
After Newsom’s hydrogen announcement, which coincidentally took place the same week Verdagy announced its Series B, Neese said investors and venture capitalists have shown increased interest in his company.
“It starts becoming a magnetic pull,” he said. “It’s almost like there is very little if any barrier to overcome. It’s polarizing a lot of interest from investors and potential asset owners.”
According to PitchBook Data, the Bay Area is home to more than 75 companies in the hydrogen space. Among them, there have been more than 200 funding deals with an average investment of $3.68 million. Collectively since 2014, those companies have raised over $1.6 billion in venture funding.
Still, while hydrogen startups are attracting attention, investments in clean-tech startups have taken a hit recently. Overall venture backing in climate technology dropped 61% in the first quarter of 2023 compared with its peak in the fourth quarter of 2021, according to a report by Silicon Valley Bank earlier this year.
Notable local startups in the space include Electric Hydrogen Co., a San Carlos hydrogen electrolyzer technology company; EnerVenue Inc., a Fremont-based startup that develops energy storage technology; and Charm Industrial Inc., a San Francisco company geared toward making hydrogen from biomass.
One hydrogen company that’s already made the jump to Wall Street is San Jose-based Bloom Energy Corp. Similar to Verdagy, Bloom executives said Newsom’s focus on hydrogen is crucial to achieve the state’s goal of being carbon neutral. Bloom, which has a manufacturing facility in Fremont, uses hydrogen to power its fuel cell technology.
“The production of cost-effective, clean hydrogen at scale is critical to decarbonizing key local industries including agriculture and data centers,” KR Sridhar, founder and CEO of the company, in a statement. “High-efficiency, commercially viable electrolyzers will be a crucial part of this equation.”
According to Sharelynn Moore, Bloom’s executive vice president, the company is ready to deploy fuel cells across the state when necessary. The company already has private-public partnerships with other states across the country — North Carolina, Connecticut — where hydrogen energy is provided.
“Bloom Energy and our technology has been ready for this moment,” Moore said in an email to the Business Journal. “Our sights remain on our technology, so that when government support comes online to potential customers, our most effective, quick time-to-power hydrogen solutions are ready to be deployed.”
In the summer of 2022, Newsom was on hand as Bloom launched a new green energy production facility in Fremont. The governor met with Sridhar, spoke with Bloom employees and toured the factory, which Bloom said would create a gigawat of electricity — enough to power 750,000 homes — a year.
Noting climate change impacts like wildfires, Newsom praised Bloom’s efforts. “Powering our homes and our communities has never been more important,” he said.
