Iberdrola, S.A. (IBE) Earnings Call Transcript & Summary

Hello. Good afternoon or good morning, everybody, depending on where you're connecting from, and welcome to Iberdrola's webinar on green hydrogen. My name is Diego Morón. I head the Investor Relations department of the group, and I will be your host today. First of all, we sincerely hope you are all in good health and keeping safe. In today's session, we would like to share the view of our company on green hydrogen. The technology, the prospects, the business opportunities and our plans to make it an avenue of growth in the coming years. For that purpose, I'm delighted to be joined today by a few of the people that are leading our efforts in this field. Agustín Delgado, our innovation, sustainability and quality Director; Millán García-Tola our Hydrogen Unit Director; and Diego Díaz Pilas, our Head of Ventures and Technology. After the presentations, we will give you the opportunity to ask questions to our panel of experts. In order to give as many people as possible the opportunity to participate, we would kindly request that you ask a maximum of two. [Operator Instructions] And now without further ado, I will leave the virtual floor to my colleagues. Please, Agustín, the floor is yours.

Thank you, Diego, for this kind introduction. And thank you all of you for attending this seminar today about hydrogen. I will try to explain in this first part, what are the challenges, our vision and the opportunities that the hydrogen economy could bring to Iberdrola. So technology ambition first. Well, I assume that most of you already know who Iberdrola is, but just as a quick reminder, we are a company with more than 52 megawatts of installed capacity, more than that -- more than 62% of that is emission free, providing energy to over 100 million people, more than 300 -- 30,000 employees, and one of the top 3 worldwide utilities. And with a very global footprint, Europe, Brazil, U.S., Mexico, United Kingdom and new businesses in Australia, Japan and Sweden. And as you already know, we have a heavy investment plan for the next period of 2020-25 of EUR 75 billion. Well, as you are aware, the evolution of the technology is being driven by the decarbonization challenge. We strongly believe that this is the conversation challenge is going to be met mostly by the decarbonization of the electricity system, plus the capability of the system networks and the storage to incorporate all this electricity into the energy system. And this is very important for this decade in which we are entering the end-use of the energy that we use in our daily life. And we strongly believe that most of the uses of energy can be electrified very much in a very intense way in this coming decade and could be up to 80% of the demand. This goes from mobility to hit on [indiscernible] to industrial processes and so on. But the truth, it is that electricity is not going to be able to meet all the energy uses. And we will need another energy carrier for those uses. And this energy carrier, for sure, is hydrogen, green hydrogen, and this is the scope of the meeting that we have today. So as I said, what are those opportunities for hydrogen, for green hydrogen, to be as an energy carrier and it's industrial feedstock in the future? Well, we think that green hydrogen is going to play a key role for those hard-to-abate sectors. And there will be like, from our understanding, 2 different steps in this hydrogen economy adoption. First, it is the current opportunities that hydrogen -- that green hydrogen can take, and it is about the industrial feedstock that hydrogen is used today. As an industrial feedstock in the refinery, in the chemical industries, in the fertilizers industry. And in the future, there will be those hard-to-abate sectors like maritime transportation, air transportation or high-temperature industries that probably will use, in an intensive way, hydrogen. As I said, hydrogen is being produced today, but mostly it is being produced with fossil fuels. 75% has been produced through a steam reforming of oil and mostly natural gas. 24% is still today being produced by gasification of coal, and this is emitting a lot of CO2 to the atmosphere, and less than 1% is being produced through electrolysis. In total, 80 million tons of hydrogen being produced worldwide with a range of prices between EUR 1 to EUR 2 per kilogram and with emissions similar to a country like Germany, right? If we want to electrify all these current hydrogen production today, the increase in the power demand worldwide would be 3,000 terawatts per year, that is close to 10% of the power demand of the world today. And in total, Europe, it's 10% of that. 8.3 million tons of hydrogen. In Spain, it's close to 0.5 million tons of hydrogen. As you know, there are -- and I mentioned before, there are like different types of hydrogen. And for those types of hydrogen, the industry has assigned different colors. Gray hydrogen, it is the hydrogen that is being produced today with fossil fuels, mostly through steam reforming or through gasification and it emits CO2. Then we have blue hydrogen. Blue hydrogen, it is the hydrogen that is being produced with fossil fuels, also with the steam reforming oil gasification, but with carbon capture. So all the CO2 that is being produced, close to 90% of the CO2 that is being produced would be captured and stored underground, so to produce, let's say, cleaner hydrogen. And then we have green hydrogen. This is the hydrogen that is being produced through electrolysis, splitting the water molecule between -- into hydrogen and oxygen being produced with renewable electricity and that this way of production is consistent with the net zero route that is going to be needed in 2050. You will also hear about other colors of hydrogen, like turquoise hydrogen with paralysis of natural gas, pink hydrogen, purple hydrogen and so forth. But I think they are much less interesting, and we will focus on blue and green hydrogen to explain it further. So why green hydrogen we think is going to be the winner? If we have, in the left-hand side of the presentation, you have gray hydrogen and the amount of CO2 that it produces with every kilogram of hydrogen. If you use blue hydrogen, you can capture close to 8-kilogram of CO2, for sure, you have to store it somewhere, and this is not that easy. And it adds cost to the process. And you have green hydrogen that doesn't have any kind of direct CO2 emissions. So gray hydrogen is not an option because of the emissions. Blue hydrogen is perceived as an option in the short term, but still, it has 10% emissions. Still, you need to manage 8-kilograms of CO2 per kilo of hydrogen. So it's not that easy to store that amount of CO2 underground. And when green hydrogen becomes cheaper, that we think it can happen at the end of the decade, then you will find yourself with stranded assets that capture all the CO2 and put it in the into the ground. So we think that green hydrogen is the option, it's the winner. It's more suitable for collocated production and use the same way as hydrogen is being produced today. And given the lower final cost, it's going to be the most competitive source of hydrogen by 2030. So strongly believe green hydrogen is the only environmental and economically viable option for the future. There are 2 different technologies to produce this green hydrogen, alkaline and proton exchange membrane technology. Both of them are commercial, although alkaline is more mature. Alkaline, it's a technology that is much more mature. It has been providing hydrogen and oxygen to many industrial processes so far, and it has lower CapEx today, but a bigger footprint, and limited dynamical operations. So if you want to accelerate or decelerate or you have more renewals at some point or less renewable at some point, alkaline will answer in a more difficult way than PEM. Efficiency range, a bit better than PEM today. PEM, it's commercial, but also it's improving very much. Thanks to the development of fuel cells. So it has higher CapEx today because it has platinum electrodes and low duration of membrane. You can have a high output pressure, and it's better suited for flexible operations. PEM exchange membrane. It is -- my colleague, Millán will talk about that later on. It's the technology that we have chosen for our first demonstration project in Puertollano. Because of the footprint that is smaller than the alkaline one. Both technologies, I think, are well placed and will have a role to play in the future, but both need volume to improve cost and performance. So going down, the learning curve will be very needed and volume will help to drive -- to write-down this learning curve. Today, gray hydrogen, for sure, is cheaper. As I said, it's 1 to 2 kilograms per hydrogen. And green hydrogen is much more expensive, close to EUR 5, EUR 6 per kilogram on standard conditions. But we strongly think that this cost could go down in this decade to a range of EUR 3 to EUR 2 per kilogram. Why is that? 3 factors have to be -- need to be taken into account. The cost of electricity that we supply, the electrolyzer, the number of hours that we have this cheap renewable electricity and the CapEx of the electrolyzer. How are those factors going to evolve in the coming years? We expect that we are going to have cheaper and cheaper renewable electricity. And you know these figures. [indiscernible] probably will expand the capacity 4x in this decade and decrease the cost another 40%, onshore wind, 3x, decreased cost another 30%, and offshore wind 7x, 50% decrease in cost. And we are going to have electricity systems with a high percentage of renewables. Besides, we are going to have increasing load factors from renewables. That will mean that we will have a cheap electricity for the electrolyzers during more time. So this is the third factor I was mentioning before. And if we look at the cost of electrolyzers, we can see in these 2 graphs, how it's going to be the learning curve. Today, we can think about EUR 1,000 per kilowatt installed, and we think it's feasible to think about EUR 400 per kilowatt install of electrolyzer at the end of the decade. And this will help very much to produce this green hydrogen in the range of EUR 2 to EUR 3 per kilogram and to be able to supply this industrial consumption, ammonia and refineries at the end of the decade in a competitive way with a gray hydrogen, not mentioning blue hydrogen, that as I said before, I don't think it's an option. So as I recall, the conclusions, electricity costs, electrolysis CapEx, electrolysis load factor, all of them together will help us to achieve those EUR 2 to EUR 3 per kilogram, and it will make it competitive with gray hydrogen if we add to the gray hydrogen this CO2 cost that way, probably, they will increase. If we look at the targets for 2030, we can see that the European Union has set up a target of 40 gigawatts of electrolyzers in the European Union. And so far, there have been many countries that has issued their strategies. And we are close to 25 gigawatts of targets from specific countries of the European Union to achieve this goal. It is not only the European Union. We can see that there are also some other countries like Australia, like South Korea, like Japan, like China, Russia, Morocco, that are also setting their strategies. So we strongly believe that hydrogen production is going to be a reality in this decade. That is going to be an opportunity for the development of renewables, and we need to develop the hydrogen value chain to make it real. And I think the first step that we have to take, it is to be able to produce this cheap green hydrogen. And why I'm saying that because there are some issues still with storage and transportation of the hydrogen. So if we want to store 20% of the annual hydrogen demand, we would need to build 14,000 salt caverns, which would cost a huge amount of money. So anything around storing seasonal energy into hydrogen to somehow flat, the renewable production is something that is going to be very, very far in the future because of the cost of storing hydrogen in a proper way, right? The same is applicable to the hydrogen transportation. To transport hydrogen is very expensive. Hydrogen is a very small molecule and to transport it, you need to compress it at very high pressures, you need to liquefy it or you need to transform it into something like ammonia or something. So transporting hydrogen adds cost to hydrogen. And that's the reason why most of the current hydrogen facilities today are co-located to the demand sites that are using this hydrogen. And this is what we try to do, to produce cheap hydrogen very close to the demand facility that is going to use this hydrogen because of the cost and because of the of the cost of the transportation and because of the cost of storing this hydrogen. And then we can also talk about future uses of hydrogen apart from being an industrial feedstock. So fuel cell electric vehicles that are today very expensive that should be in the world, like 7,000 fuel cell electric vehicles compared to millions of electric vehicles, battery electric vehicles. And the reason for that, it is that part of -- they are more expensive. It is that they are much less efficient. If we make analysis of well-to-tank and tank-to-wheel of the efficiency in the use of energy of different vehicles, we can see that for battery electric vehicles, we have an efficiency close to 70%. But for fuel cell electric vehicles, we have an efficiency of around 25%. And the reason it is that we have to convert electricity into hydrogen and then back hydrogen into electricity. And all these conversions steal efficiency from your process. So we strongly think that hydrogen will not play a relevant role in light transportation. But it will play a role in the decarbonization of long-distance heavy transportation like maritime, probably in the form of ammonia or some other forms of transportation like very long-distance heavy-duty vehicles. But I don't think we will see light-duty vehicles running on hydrogen, and they will be running on batteries. And if we talk about residential heating, to produce hydrogen that it is a very high added value product and then burn it, it's a shame. It's a pity. Because it has so lower efficiency compared to heat PEM that we don't think is going to be competitive neither today nor in the future. Hydrogen to be served at homes would require so high investment in gas networks in adaptation and apart from that, the total cost of ownership of a system like this wouldn't have high-efficiency and the cost wouldn't make it viable. So we strongly believe that blending hydrogen with natural gas is not a solution. It's not a route or a path for net zero and to convert the whole gas infrastructure into hydrogen is too much expensive and it's not that efficient at all. So we don't think this is going to be a bright future for hydrogen applications. So far, so good. I will leave the floor to my colleague here, Millán, who will explain our plans as a company.

Thank you very much. It's always a pleasure to hear you. Very interesting. Now let's move on to the next chapter of the agenda. Please Millán, now, the floor is yours. Thank you.

Fantastic view of what's our forecast for hydrogen in the future. So first of all, we have to say that we see hydrogen as a global opportunity to follow and help the growing of the company all over the world in renewables. Don't forget that green hydrogen needs green electricity, needs renewables to make real the production of hydrogen. So we think that this is a global opportunity for our global business. Following the words that Agustín said, that the European Union has made -- has a clear view of their goals to decarbonize the industry to 2050, so in this process of decarbonization, they believe that the integration of renewable hydrogen into the energy system is a main key to achieve this goal. So they are -- they believe that there are new facilities of green hydrogen production to be built, and there is an intermediate goal of 6 gigawatt in 2020 -- in 2024 and 40 gigawatts of electrolyzers in 2030. But this is not going to be possible, as Agustín said, due to the level of cost that right now exists on the hydrogen production. If there is no support from the European community. So involved in this financing, decarbonization that the community has developed. There are some funds that will help to level the price of the production of green hydrogen, as you can see in the slides. So where is Iberdrola's business focus? Aligned with everything that Agustín said, we think that the first and absolutely real today use, an option for green hydrogen is to replace all the -- as much gray hydrogen that right now the industry is using. And it's important to say that, as Agustín explained before, this replacement is more effective if you do that on site, close to the customer. Because all the transportation costs and storage costs. So we think that for this amount of gray hydrogen that is produced right now in the world, there are some niches that -- I don't like to call them niches because there's a lot of hydrogen produced in the world. So there are some sectors that needs an urgent decarbonization, an urgent replacement of gray hydrogen with green hydrogen. These industries are the fertilizers, the petrochemicals. and other niches like glass producers, and for example, hydrogen fats sectors. Don't forget, then gray hydrogen is responsible for the production of hydrogen with the methods that Agustín said. It is responsible for the 2% of the CO2 emissions all over the world. And what else? There is some kind of -- being absolute agreed with Agustín, we need to think that hydrogen is only going to be a solution in those places or those sectors where electricity is not possible or is not efficient. And we think and we are seeing because of the industry's demand need, that there are some movements around all of those transportation and mobility where electrification, as I said, is not the best option. I mean, of course, trains, don't forget that in Europe, they are more than 80,000 kilometers of railways without electrification or trains -- excuse me, ports and airports, captive floats that they don't have time to refuel the battery. So there are some niches that because of mainly the time of recharge or the long distances that they have some kind of opportunity to grow with hydrogen. And we have been seeing this in some places like I'm going to explain to you later. And later on, I'm sure that we will see some solution for maritime transport, the ammonia could be on planes. And in the very long term, we could see a substitution of natural gas in the production of energy or in the high-temperature industry. But it's hard to believe that the costs of producing green hydrogen should level the cost of natural gas. So this only should be possible if the carbon taxes rise up to EUR 150 per ton. So what's our planning figures? We think that we need to move fast, grow fast, but with small ambition because what needs the market right now is to impulse it to start moving and to do things. So as you can see in this slide, we only have an ambitious. For us, it's very ambitious, but our goal is to build 600 megawatts of electrolyzer in 2025 with 15,000 tons per year of hydrogen and helping development of 1,000 megawatts of photovoltaic capacity. But to be absolutely clear, our contribution to the EBITDA of the company is going to be absolutely symbolic. This is -- we are thinking of hydrogen in a long-term business, not a short-term business. I have to -- I bring with me 2 cases. they are not cases, in fact, they're realities. Because as you -- I'm sure that you know, we have been developing, since summer, the first phase of Puertollano project. Puertollano is a fertilizer plant that is -- that belongs to Fertiberia. Fertiberia is the main fertilizer company in Spain. They produce in this plant in Puertollano, it's in the middle of -- in the center of Spain and [ Palos ] is at the south of Spain. They produce ammonia for fertilizers. So we, together, Fertiberia and Iberdrola made a plan for transforming this day, Of course, they use gray hydrogen for their production. And we made a plan, a long-term plan until 2027 to transform this gray hydrogen and gray ammonia production for gray or not-green fertilizers to green hydrogen, green ammonia and green fertilizers. We made a 4 steps plan in their both sites. And we are going to start with a small project, but it's going to be -- should be -- I'm almost sure that it's going to be the biggest real project in Europe. We're going to start 20 megawatts of electrolyzer in Puertollano, that there -- has the supply of photovoltaic dedicated plant with the support of a battery, and we are going to produce more than 1,000 tons per year of green hydrogen and also oxygen that could help to -- Fertiberia to be the -- to produce the green ammonia. So if all this plan does that, as I said at the beginning of my speech, needs, of course, the help of the administration, it's going to make Spain the first country with the 100% of the production of green ammonia. Next real project that I would like to share with you is that we won recently a few weeks ago, the Barcelona metropolitan transport tender. It consists of -- Barcelona metropolitan transport is going to buy from today to 2030, up to 60 hydrogen -- 60 fuel cells buses, and they tendered the construction and operation and supply of all the hydrogen -- green hydrogen for the 60 buses. So we have been awarded with this tender a few weeks ago. And what makes this tender is to strength the position of Iberdrola as a benchmark for urban electricity mobility because we are -- I'm not going to say the best, but we are the best in -- in electrical mobility, and we are very competitive in hydrogen mobility as this tender shows. And that's all from my side. Thank you very much for your attention. And I pass the floor to Diego.

Thank you very much, Millán. Very, very clear. And now last but not least, Diego Díaz Pilas will cover the third part of our agenda. Please, Diego, the floor is yours.

Thank you. Thank you very much, Diego. Good afternoon, everyone. After Agustín has said the same with the vision, and Millán has explained in detail our plans. I'm going to talk briefly about Iberlyzer, which is the electrolyzer company that we announced a few weeks ago and that you have probably read about. So the first is why Iberdrola is actually embarking in a project like this one. So we've been talking about plans to hydrogen between 2020 and 2030. But the reality is that when we look at the number of, let's say, operational projects of, let's say, power-to-x or hydrogen or whatever you want to call that, of green hydrogen. A reality is that there are very few projects operational in the world. As Millán was describing, our 2021, 20-megawatt project in Puertollano is going to be the largest in Europe just next year. So that gives you an idea of the type of projects that are operational today. So we see less than 100 projects active today with less than 100 megawatts. And that gives you an average of, let's say, 1 megawatt per project. There are some largest ones. But in reality, what we have seen when we have analyzed the value chain is that there are strong players that are growing but for the growth that we are foreseeing, we believe that this value chain needs to be boosted. And that's one of the key reasons for us to actually start working in this area. Second reason is, and both Millán and Agustín touched briefly on the ambitions of Europe to actually become a champion worldwide in relation to green hydrogen, this ambition has been made clear, both at the European level and also at the Spanish level or Iberian level for Spain and Portugal. But we see a brief, let's say, difference here. So Europe does not only want to be a champion in green hydrogen when we talk about projects, but also when we talk about technology and industrialization. So let's say that in the past, for instance, if we take the example of PV photovoltaics, Europe has been, let's say, a champion in growth of the technology. But perhaps the continent and several countries have lagged behind other geographies in technology development and industrialization, right? So the perception here, and we believe, based on the, let's say, on all the statements that have been done at both European and Spanish levels that this is not an error that anyone is willing to make again. So we believe that in order to actually get the support that the projects need, we perceive, let's say, a strong push towards the development of the value chain and the industrialization of the -- of Europe regarding hydrogen. And this is the second reason why we have decided to get into this Iberlyzer project that I will give you a bit more color later in the presentation. And the third reason is related to Iberia, right? So there is a rationale. You know that Iberdrola is a global company, like Millán was explaining our ambitions in relation to hydrogen are global, but why somehow Spain comes first? Well, one of the reasons why Spain or Iberia comes first is related to the renewable resource. So we've seen in Agustín's presentation that the cost of green hydrogen is going to be, and it's already very tied to the renewable resource. And we believe that Iberia, both Spain and Portugal are very well suited with a great solar resource and a very good wind resource to actually be one of the most competitive areas in the world in relation to the production of green hydrogen. And in parallel to that availability of resource, there is, let's say, as we have briefly seen in the previous presentations, an ambitious and coordinated effort between both Spanish and Portuguese governments that together add to a goal of 6 gigawatts of electrolyzers, let's say, on the ground by 2030. And several hundreds on the ground by 2024, which is one of the most ambitious and short-term plans in the world. So with this combined effort, which is -- adds together more than 15% of the whole European Union target. Somehow we believe that Iberia is really on the verge of becoming a renewable hydrogen hub. And this is why, let's say, we are focusing on developing electrolysis, why Europe and specifically why Iberia. So -- and then how we plan on doing that, right? So we've talked briefly about the whys. And now we'd like to share with you a bit on the how are we going to do this. So we've been working with technology companies for more than 10 years through our ventures program. And we've been working with them to channel innovation from these emerging companies and start-ups towards the business of Iberdrola in the form of minority investments, in the form of piloting technologies, in the form of challenges of technologies. And we are ready now to take -- and Iberlyzer is the first example in this program, we are ready now to take a step forward, which is we are detecting need for innovation in the market, like I was describing on the previous slides. And we believe that we can, through Perseo Venture Builder, which is the unit that we recently launched. We can contribute to the launch of transforming internal innovation and knowledge into new businesses, specifically in technologies that are focused on supporting electrification and technologies that are focused in decarbonizing hard-to-abate sectors. So we've touched briefly based on the whys. This is the tool that we are using. And now we're ready to give you a bit of more detail on what is Iberlyzer about, what are the shareholders, who are the partners and what are its ambitions somehow. So the mission of the company is to provide larger-scale electrolyzer systems to large customers with strong hydrogen demand. As Millánwas saying, Iberdrola is focusing first in decarbonizing current hydrogen production. We believe that's really helping go down in costs, and Agustín has also a brief touch base on that. And that's going to be the main focus for Iberlyzer as it's mentioned. So 2 companies are forming Iberlyzer at this point. The first one is Iberdrola, and you know our plans by reviewing this presentation. And the second one is Ingeteam. Ingeteam is an international technology group with presence in more than 20 countries, focused on power and control electronics integration and manufacturing of all sorts of electric machines. So we believe it's the right partner to fulfill the goal and the mission that we have set for Iberlyzer. So what are the resources and the main targets that we have in the company? So we have the goal of integrating more than 200 megawatts of electrolyzers by 2023. And we are investing all together with the partners and the different entities, more than EUR 100 million in these years and creating more than 150 direct jobs. So this is somehow the mission, but we have already moved since we have created the company. And beyond the current shareholding, we have reached the first agreement with Nel, one of the leading manufacturer of electrolyzers in the world, to further developing the technology value chain, Iberia, which we described was somehow one of the main goals here. So all in all, what we want is for Iberlyzer to fulfill the market need somehow in the same way as Gamesa did in the early days of the wind industry. So this is not so much for Iberdrola to become a manufacturer. This is not the goal of the company, but more so for helping boosting the value chain and for helping boosting the industrialization of the areas that we believe are needed in order to support the growth of the business, which is the main goal here, and Millán has, very detailed, described in this presentation. So in all, that's the vision that we have for Iberlyzer. And before we wrap up, and we have time for questions, since I'm speaking, I will be briefly wrapping up everything we've seen today. So regarding technology ambition, our vision from Iberdrola is that for decarbonizing the first thing we need to do is electrify as much as possible and as many final energy use as possible. We have the technology to do so, and we need to really grow that. There are roughly 15%, 16% of final energy demand that is going to be challenging to electrify. And we believe that hydrogen can play a very, very pivotal role for decarbonizing that 16%. But if we want green hydrogen to be competitive, we really need to grow the number of projects. And to grow the number of projects, we need to focus in whatever is demand today. And as Millán was describing, this is current gray hydrogen consumption. So if we focus in the short-term on that, then we would be able to lower down costs so that in the midterm, we are able to, let's say, tackle those hard-to-abate sectors. So why green hydrogen? I think that was made party clear by Agustín. Today, it's perhaps a little bit less competitive than other options, specifically with current CO2 prices and current technology cost. We foresee a reduction, a very strong reduction in renewable costs to 2030 and an increased capacity factor. So that's going to -- along with the development of the value chain that we were describing before, that's bringing down the cost of green hydrogen so that we believe that's the clear winner. And any other investment is most likely going to become a stranded asset in the midterm. So that's why we are betting our strategy towards green hydrogen. And then on Iberdrola plans and summarizing Millán's presentation, we will have the largest project in Europe only a year from now. And we have an ambition plan -- an ambitious plan to 2025 and beyond that has already been described. This business unit is going to -- is going global. So we are not focusing on Iberia or anything, although the first step for the reasons that we explained is going to be focused in Spain. And lastly, but very importantly, in order to, let's say, commit and get the business to develop at the pace that it needs. We are fully committed with the development of the value chain, and that's why we have launched the Iberlyzer project that we have briefly described. So with this, I finish my presentation. Thank you very much.

Well, thank you very much, [indiscernible]. And now I think that we can just open the Q&A session. Please, operator, first question.

Your first question comes from Harry Wyburd from Bank of America.

So I'll obviously keep myself to 2 questions. Firstly, on cost. I think you mentioned on -- I think on Slide 23 that you'd need CO2 prices to go to about EUR 150 a ton in order to make green hydrogen viable for some of the usage cases. I wondered if -- have you done any analysis on what that would actually mean for the cost to the end user? And what I'm trying to get a measure for here is if you are a train company or an ammonia producer or a steelmaker, how expensive is it going to be to convert your operations to hydrogen? And then what ultimately is that going to mean for the prices of these products in the end market, just to get a sense the viability of passing on some of the cost of this to end consumers who buy steel and train tickets and so on? So that's the first one. And then second one, just on the scale here. It was interesting. You mentioned on Slide 7 that it's going to be 3,000 terawatt hours of output needed just to convert the current hydrogen consumption by industry. I mean that's -- I think that's roughly equivalent to the entire power consumption in Europe. And this is just the early step, right, in the sort of stages of hydrogen, and I guess, we get a lot of debate from investors about there's too much competition in renewables and big oil is going to come in and crash returns. But I was wondering, it could actually be the other way around, I mean, is it really technically and physically feasible to build enough renewables to actually produce this much power? So just interesting to know if you've kind of done that analysis at a European or global level? And is it really feasible to make this much renewable capacity to produce or this hydrogen in a sort of reasonable timeframe?

Great. Thank you for the questions. Well, starting from the end. Well, I think that we have enough renewable resources in Europe, and worldwide, to produce as much electricity and power as needed. So I don't think there is lack of resources and there is a limitation on resources. There could be limitations in specific places or locations, like it could be perhaps U.K. or some specific places, but I don't think there is a limit for the renewable expansion, right? As I said, worldwide, there is more than enough renewable resources. And it's true that this 3,000 terawatt hour, that this 10% or even more than 10% of the electricity consumption today is a huge amount, and that's why we see this as a big opportunity for the renewable industry and the utility industry as a global to increase our demand and to be able to provide that. So no concerns about the capacity of the industry and the renewable resources to provide that hydrogen. So also regarding the question about the cost of CO2, on the competitiveness of hydrogen, green hydrogen and so forth. Well, it's true that CO2 cost will help very much the competitiveness of green hydrogen production. Our estimation, it is that every EUR 10 per CO -- per ton of CO2 will add the cost of around EUR 0.1 of -- per kilogram of hydrogen. So with these variables, you can make the calculations. And the truth is -- it is that -- there are some sectors that will arrive to this competitiveness before others. For example, those industries that are using compressed hydrogen, they will arrive to this -- to the competitiveness before because of the cost of transportation. Those industries like refineries on fertilizers, ammonia producers, as Millán was mentioning before, they will need a lot of support at the very beginning, and then they will struggle to get competitiveness at the end of the decade. But we think it could be somehow achieved. Those uses that you were mentioning before, like steel or cement or these high-temperature industries and so on, okay, this is going to be difficult and probably some kind of regulations will help very much on this competitiveness. But I think that we are in a very exciting decade, in which technology will help us to achieve a feasible and technological achievable solution. And then probably we will be able to make the cost through regulations, through CO2 cost, through decreased cost of the technology and so on, we will try to make and probably will make this technology competitive.

Operator, next question, please.

The next question comes from James Brand from Deutsche Bank.

I had to -- primarily the questions, just trying to understand a little bit about the conclusions you have come to around residential heating and some of the estimates for costs that you've put out on Slide 18. I'm just trying to understand a little bit better what's going into your hydrogen future best cost estimates. And in particular, you made some comments that you saw hydrogen as being very inefficient compared to some natural gas. And you have included your efficiency estimates, see from condensing boiler being pretty close to 100%. So I was wondering what efficiency estimate you were using there for hydrogen, as a particular point? And then if you were able to describe more broadly, what assumptions have rolled into that future best scenario in terms of maybe electrolyzer cost or overall hydrogen cost to dollars or euros a kilogram? And I was also wondering whether that slide included an estimate for carbon pricing. I guess that's a few questions, but particularly the efficiency point I'd be interested in, in your view. And then there's also a comment later on around huge potential storage costs if you wanted to store hydrogen. As a 14,000 salt caverns cabins and $637 billion investment. Is that a Europe -- is that global number or European number? And I was kind of curious it sounds huge in terms of the numbers, why it's so much bigger in terms of capacity than we have in the current gas storage networks. And then finally, I was interested if we can cycle back to residential heating. If you don't think that hydrogen is going to be a technology for residential heating. What technology do you think we'll be using biomethane supplement electric heat pumps, because I don't think many people think that electric heat pumps are going to be enough on their own to be able to deal with the peaks.

Thank you. So thank you for the question. I think it's -- the residential heating one is a very interesting question. So I will start by elaborating a bit more on the hypothesis somehow, as per your question that are behind Slide 18. So regarding the efficiency, hydrogen efficiency for heating is the same as roughly as natural gas efficiency for heating. We are talking about 100%. So that's not -- we are not, let's say, penalizing, if you want to call it, or we are not saying that hydrogen is going to have a worst efficiency than natural gas for heating. The main difference in terms of hypothesis is related with the difference of efficiency versus electricity. So when you are talking about residential electricity with a heat pumps, you see efficiencies on a seasonal basis above 300%. And that's why the OpEx of heat pumps is really way lower than that of hydrogen today and in the future. Additionally, to this slide, this is not factoring in any upgrade costs that would be required in the gas grid in order to carry hydrogen. So we are only factoring in, in this hydrogen today figure, we are factoring in, let's say, the wholesale cost of hydrogen plus the actual or the spread today between wholesale and retail for natural gas. So that's only today. And the future [ vest, ] we are being, let's say, aggressive in the cost reduction for producing hydrogen in the estimations based on the cost reductions that we see for green hydrogen, and adding only that, let's say, spread between wholesale and retail, the same as we are doing in the today case. So we believe that all in all, these numbers are conservative in relation to electricity and very positive in relation to hydrogen. And even with those hypotheses, we believe that in order to cover the residential heating demand, the winner technology is the heat pumps. Additionally, to -- let's say, additional technologies, we don't see that other technologies like biomethane, in terms of the available resource. It can play a role here. We are talking about huge amounts of energy. And we believe that the technology that is well suited is heat pumps. Specifically, we are talking about cold climates. There will be some times in which heat pumps will be less efficiency. But overall, in colder climates, you use the heat pump long. And since the OpEx is the main advantage, we see that they are even more competitive. Lastly to the question on storage, and I think that was just a comment. It's 20% of global hydrogen current production. So that's the figure where it's coming from.

Okay. Thank you very much, Diego. Operator, please, next question.

The next question comes from Javier Suarez from Mediobanca.

Two or 3 questions. The first one is a follow-up from one of the previous questions on a the relative competitiveness of hydrogen versus natural gas down the road and this mentioned to EUR 150 per ton of CO2 as the [ sweet ] factor. So I was wondering to what price for natural gas, you are comparing hydrogen too? Because our calculation is that, that factor could be at a lower level. So I would be interested in that comparison, what you are assuming as cost for natural gas and also what you are assuming for the CapEx to build the electrolyzer, the levelized cost of energy so on and so forth? Because again, it looks to me EUR 150 per ton too high as a price for that [ swing ] to happen? That is the first question. The second question is on the electrolyzer itself, as you have made interesting comments on the different technologies available, alkaline versus PEM. And so you can help us to understand what is in Iberdrola's view, the technology that is likely to be the winner. Or the difference in utilization between both technologies, that would be very, very helpful as well. And the third question is on the structure of the market itself. So the question could be in the hydrogen value chain, what do you think Iberdrola should position itself. It should be a company provided with renewable energy electricity to the electrolyzer? Or it's a company that is also going to invest through the whole value chain and is going to be with the final commodity, and therefore, it's going to make use of the electrolysis to produce a new commodity call hydrogen that is going to be commercialized in a liberalized market?

Okay. Javier, I'm going to answer your the -- to answer to your first question, if we say that we need -- we would need EUR 150 per ton of CO2 taxes is because we made this exercise with a real client that we are trying to do some test. Of course, this is not -- it's a pilot. It's not a big scale. But even with a pilot, even with a small amount of hydrogen injected directly into their engines to produce electricity, we are not going to achieve the breakeven point until we get -- if we don't get this level of carbon taxes. So I'm sorry to be so pessimistic, but that's the figure that we get.

Yes. Well, regarding the question about the technologies of the electrolyzers, we think that for now on, both technologies are going to live together. We will see and we will wait to see if there is any clear winner. As I said, our client [ and clusters ] are today cheaper, they are, today, best suited for a steady production and steady flow of hydrogen. So for industries that need this steady flow hydrogen, probably our client would provide a better performance and price balance. And for sure, you need to provide electricity to electrolyzer for these steady hours. And this is a challenge that we are facing with our mix of supply of green electricity that we can provide to the crisis. So alkalines for those industries needing this steady flow of hydrogen. For those industries that has somehow requirements on a smaller footprint or requirements on needs for higher and lower production of hydrogen depending on the renewable source and so on, then proton exchange membrane would be best suited. And we evaluate in our projects, both the noise and then choose any or other. For the future, the perspective, well, we have seen very cheap prices, at least nominally in alkaline electrolyzers today. And we have seen a various deep decline on cost of PEM electrolyzers with very good perspectives. So we remain open to both of them. And in the presentation that Diego mentioned about Iberlyzer and how we are going to manufacture electrolyzers and so on, we are going to help the promotion of the company that is going to manufacture electrolyzers. We will be open to both [indiscernible] because we think both of them will be well suited for different applications. Last question was about where Iberdrola, I think, it could be positioned itself in the whole value chain. And for sure, I can assure you that we want to provide -- bring electricity to the electrolysis system, but we also want to install and operate electrolysis system and being producer of the commodity of the hydrogen commodity to final consumers. So I think it is clear our goal of adding hydrogen as the -- to the portfolio of products or commodities that we are selling. Beside -- and to help to develop the value chain -- the supply chain, we have set up this venture of Iberlyzer that somehow will help to develop the supply chain and the offer of electrolysis systems that will be available for our projects.

Well, thank you very much to the 3 of you. And the next question, please, operator.

The next question comes from Arthur Sitbon from Morgan Stanley.

So the first one is you mentioned the difficulties to make hydrogen -- green hydrogen a viable option for heating, especially due to the investment required in the gas grid. And I was wondering, in that case, how do you think the question of inter-seasonal storage will be addressed in a fully electrified model, especially for heating? So that's my first question. And the second one is we've seen quite ambitious targets at the European level for the green hydrogen industry. I was wondering, in your view, what are, at the moment, at this stage, the main bottlenecks to achieve those ambitions?

Well, first question about heating. Well, we have to bear in mind that, for sure, if we want electricity to become the main energy carrier for heating, location matters. Different countries will have different requirements. So if we look at countries like Spain, France, Italy, and most of the countries where people worldwide lives, we think that heat pumps can cover a very high percentage of the heating needs, right? So I think we have the opportunity to really decarbonize a sector that was, before, very hard-to-abate. And now we have the NOI to do so. So it's true that for some countries, like it could be U.K., it could be in Norway, it could be some others. Maybe you need to have an additional source of energy for those very cold winters in which maybe your electricity network is not going to be able to supply you with energy. For that -- to think that for those specific situations or those specific climate conditions and so on, you are going to build a whole hydrogen infrastructure because of that with the losses of efficiency that you have, I think it's very premature. So I would say, as many countries are doing, I would go to the -- to the long hanging fruit that it is to trying to electrify as much as possible and to remove as much as possible fossil fuels for our heating system. And then with those, let's say, hard-to-abate or hard-to-electrify locations and systems, then we'll figure out what solutions can be done. But truly speaking, I think we have the opportunity to remove with cheap energy, renewable electricity, most of the heating needs residential ones worldwide today.

So regarding the bottlenecks, which is a fair question. When you -- when one is, let's say, ambitions like the 40-gigawatt electrolyzers. So the first bottleneck some how to reach that level is demand. So right now -- and that's the main reason why we are focusing on existing demand because existing demand is the only, let's say, large enough volume of demand that can allow to reach those targets, and at the same time, removing CO2 emissions. So the first bottleneck that I would probably refer to is demand because future demand only fits 15% of final [indiscernible] demand is huge. But it's not there yet. The only demand that is there yet is the current industrial feedstock demand, and that's why we are focusing on that one. And that will be kind of the first, let's say, bottleneck. The second one is to serve that demand that is there. There is, let's say, bridge that needs to be made in terms of competitiveness and both hosting, as Millán briefly touch based on that, like, okay, we have the demand, that is the one that is large enough so that we need to focus on it. But still green hydrogen needs some support to actually be competitive with gray hydrogen in the short term. So probably competitiveness is the second bottleneck. In parallel, regulation is probably the third one so that if we want to tackle that existing demand, that support needs to be also in the form of better regulation and the same for the mid- and long-term for the hard-to-abate sectors. So the green hydrogen is a more competitive solution. And that's why we've been discussing during the presentation CO2 prices and so on. And probably the last one is also the last part of our presentation, which is the value chain, right? So we need the value chain to grow quickly enough from 100-megawatt operational projects in 2020 to 40 gigawatts only in Europe operational by 2030. So that's, let's say, a huge challenge in terms of the value chain, and that's why from Iberdrola, we are pushing in that specific area. So to sum up, I would say, demand, we need demand. And the only one that is there today is existing demand. We need a boost of competitiveness in the form of support for green hydrogen to serve that demand. The same for the future demand. And in parallel, we need to, let's say, further develop the value chain so that we are able to make these, let's say, 2 orders of magnitude growth in terms of what the industry is able to serve.

Please, operator next question.

Your next question comes from Elchin Mammadov from Bloomberg Intelligence.

I have 2 questions please. My first question is on the competition. I mean, utilities are -- and pure-play developers of wind and solar are the main owners and operators of these assets today. There are also infra funds and oil and gas companies that are entering the space. Who do you see to be the main owners and operators of the hydrogen production facilities come 2030? Is it going to be utilities, oil companies? And as a part of that question, do you see oil companies as a partner for you or as a competitor for you? We've seen a lot of projects where they actually partner up with the utilities on some hydrogen clusters. So wanted to hear your view. And the second question is on your hydrogen business overall. I remember your IPO-ed and then later on delisted Iberdrola Renovables. Are you considering a similar thing for your hydrogen business, given that it's not going to contribute to EBITDA anytime soon?

Okay. As we said through the presentation, we hope to become a hydrogen supplier for the industry, but for the other uses of of hydrogen in the future. So we want to own electrolyzer assets. And I think that we will have -- we have today. One or two of the keys for competitiveness of this hydrogen. First, it is to have access to a wide portfolio of cheap renewals; and second, I think to have the possibility to mix our electricity supplies to provide high load factors for the electrolysis systems. So I think a company like Iberdrola will have one of the best positions to have green hydrogen -- a competitive green hydrogen. So -- the answer to the question is yes, we will have -- we'll own the assets. We'll have some competitors, for sure. And -- but we think we will be very competitive in this regard. Second question about an IPO of the business or something. I think it's very premature. We have just launched this unit this year. I will leave the floor to Millán, if he want to explain further.

Absolutely agree with you, Agustín, it's too premature. We are -- right now, we are in the moment to move this business, to start the business to make things happen, and we will have time to think about profitability.

Thank you. Please, operator, next question?

Your next question comes from Jorge Guimarães from JB Capital.

Firstly, on the -- if you take a step back on the electrolysis themselves. As of today, what is the -- how many -- for each kilogram of hydrogen, how many megawatt hours of electricity are needed. So what is the -- effectively the conversion ratios? And how do you expect it to evolve until 2030? And the second one would be, what is the lifetime of an electrolyzer? Is it comparable to a solar panel or, let's say, 10 years' time, one is to replace electrolyzer and spend the CapEx again?

Okay. Thank you very much for your question. There's some rule that it's easy to remember that you need 60 megawatts hour of electricity to produce 1 ton of hydrogen. That's the common figure right now. I think, I presume, and I'm sure that Alejandro -- not Alejandro, Agustín will know better than me that there's some kind of improvement in this area. But as today, 60 megawatts hour per kilogram -- per ton. And your second question is how is -- how long do the electrolyzer exists. The main -- the bottleneck of an electrolyzer is a stack. The stack is some kind -- it's something that you can change during the whole life of the electrolyzer. So we are thinking, and we have been buying electrolyzer with 25 years of lifetime, but I'm sure that giving them the right maintenance and change in the stacks, it will last as much as they will be competitive.

Thank you very much, Millán. And I think that we're going for the last question, operator.

The next question comes from Miguel Medina from KC Capital.

Just one question on the Puertollano project, who's going to cover the cost differential between the gray hydrogen that Fertiberia is currently using and the green hydrogen? If that's like a state funding or EU funding, is that subject to some sort of state-aid test?

[indiscernible] this to the innovation fund, we hope that this point should be awarded with the funds. And of the rest of the steps, we need to have some kind of -- that level, the price of the green hydrogen with gray hydrogen. That's true. If we don't get that found, so that help that we need to levelize the price, the project should be very hard to realize. Thank you very much.

Thank you, Millán. And this was the last question of today's session. Thank you so much to our team, to Millán to -- they both have to rush to Diego as well for the time today, and thank you all of you for attending today's session. Before saying goodbye, just we would like you to wish you Merry Christmas. Please stay safe. And we really hope to see you all in 2021. Bye now.