Mitsubishi Heavy Industries, Ltd. (7011) Earnings Call Transcript & Summary

This is Kaguchi. So this is directly coopted by the present, so we will be moving forward in implementing energy transition as a whole of the company. And we expanded the growth area at the same time as [indiscernible] part of that title here. And of that for the past 12 years, we want to talk about the update on what we did in energy transition and where we expect to go. So we want to go through them on [indiscernible] basis. So let's turn to the agenda page. So here is the agenda. I was just introduced by [indiscernible] and we will talk about in three parts. And so the decarbonizing existing infrastructure, this is related to existing plants, [indiscernible] the energy domain head, and will go over. Next page, please. So first of all, for the past year, [indiscernible] how it fell and the major changes happen in the world. A lot of them we already know about them. So I want to look what exactly happened. So globally, still strongly that energy transition has accelerated a lot. The invasion into Ukraine happened caused the current energy crisis. So at the beginning, about energy transition could be -- may be delayed a little bit than originally expected. But when I look at the actual situation, it has been actually accelerated. And partly, in Europe, the energy costs going up so high, so that renewable energy project had to be suspended including production of hydrogen. But renewable energy can be utilized or could produce locally, no need for the importing. So there is a momentum to see the use of renewable energy. So energy transition, many focus on renewable energy have been accelerated a lot more after going through the invasion into Ukraine. Another major topic is in the U.S. In last August, Inflation Reduction Act was enacted. There was another major move. And a lot of incentives were provided and it can be applied for 10 years or 20 years, so the guarantee -- economical guarantee is provided for that long. So many projects are considered and activated a lot. And using CCUS, basically $85 per ton as incentivize and the clean hydrogen created will be incentivized by basically $3 per kilograms. So considering these incentives, we're creating boost in hydrogen, going after CCS and then run them on the gas turbine could be more effective than the natural gas in some cases. So many different opinions and many different projects are considered right now by different partners. And clearly, in APAC, many auctions are taking place right now. And simply put, especially in Singapore, so they are trying to be a green country, or advanced country in green energy and by implementing various projects led by the government. So they are working on that. So many business entities are actually coming to us for cooperation. Also in Australia, they are also working -- they expect to have a huge amount of access and renewable energy. They have power, solar power, the wind power generation. So those are resource countries with coals and gases, but they also want to be an exporting country for green energies. And so we're working together. We are having many discussions on technologies at this point with them. Second point is actually related to internal situation. So in 2021, the Mitsubishi Power is now integrated into MHI. So as part of the energy business. And following that, this year, MHI Engineering is now integrated into MHI. The major purpose of this integration is to accommodate the energy transition. The CCUS hydrogen, it can be all handled in an integrated manner under the same control. All of the major movement we saw -- next page, please. In today's explanation, on the right-hand side, we have some pictures for April 1 this year, present is Misawa, explain them. So I just took the exert of the presentation. So Energies Foundation covers both the production and usage of energy. And today, we focus on supplying side of energy when it comes to transition. Next slide, please. On the left, we have -- this is according to the report from [Mackenzie] [indiscernible] in a scenario. We have worked at all this information, and this represents what we expect to see what we hope to see [soon]. This is a usual information. So right now -- right now 35 billion tons of CO2 was created very little CCUS, when we achieved neutral in 2050, we need to reduce by 7 or 8 billion tons and hard to abate industries are seen in this area such as [indiscernible] will be remaining. The CO2 created from the industry will need to be captured to bring it down to zero. The CO2 capture, there is a certain demand. And also, we will use hydrogen to reduce the production of the same. That's what's expected. So those were our three pillars in order to try to decarbonize the existing infrastructure. Hydrogen solutions ecosystem is built and CO2 capture, store -- storage and the usage. So those are the three measures that we are thinking [indiscernible]. So let me hand over to Hashi now.

I am Hashi, the Head of the Energy domain, thank you. So Chapter 2, decarbonizing existing infrastructure. So MHI has proposed a decarbonization on existing thermal power plants as a means to help achieve carbon neutrality and so inverses the [indiscernible]. This is the CO2 emission from coal-fired power plant, it's starting at 100 and showing the reduction from -- so in coal-fired power plants, which is the top line, Ammonia [indiscernible], is coal fired a method to reduce the CO2 first or the aged coal-fired power plants will be a low line using [indiscernible] with a high efficient gas turbine to reduce CO2. The gas turbine then also [indiscernible] to capture CCUS will be combined together to further reduce CO2. So this is not just for gas turbines, but also the coal-fired boilers on the line -- top line can apply this technology. So it can also reduce CO2 at the same time. In addition, in the future, we're converting [CO2] to hydrogen and others. We are proposing a way to decarbonize the electricity supply, which is shown in far right in the blue, where CO2 is zero. And also, this is not today's topic but we're utilizing nuclear power as much as possible is another path to decarbonizing the electricity. Next page, please. This is showing our technology development operations towards decarbonization. On the left, this is operation developing elements technologies. On the right-hand side, this is the validation facility in thermal power plant, elemental technology development and decarbonizing thermal power is in Takasago and Nagasaki where we have manufacturing and research centers. And we are currently making preparations for separating Takasago, that will enable integrated long-term validation of these technologies under actual conditions. This is what we call the Takasago Hydrogen Park. So this process of [fully] validating new decarbonization technologies under actual plant operating conditions before bringing them to market is what is behind one of MHI's greatest strength, which is the high reliability. Our gas turbine, our flagship products, there being developed to comply with the strictest standards in the world, Europe CO2 emission regulations. On the left hand side, we sold EU taxonomy and CO2 emission zero combustion technologies, pictures are shown here. And in the center, there is a graph where you see a dotted line, it shows EU taxonomy 270-milligram per kilowatt per hour. In red solid line, it shows large-scale gas turbine development situation. And green line, it shows midsized to smaller sized gas turbine development situation. Regarding for large frame gas turbine, we are aiming to commercialize this technology in 2025. [indiscernible] using that in this combustion test, we have already completed the 50% mix of fire and combustion tests using conventional combustors. And this will allow us to meet the EU Taxonomy of CO2 emissions standard of 270 milligrams per kilowatt hour. In the future, we'll continue to develop a new type of combustion in the aim to achieve 100 hydrogen combustion in large gas turbine by the end of 2030. Next, the green line. We're also developing a technology to support compatibility with zero carbon fields such as hydrogen and ammonia in small to midsized gas turbine. In 2022 time, we successfully connected 100% hydrogen fire combustion test using a single combustor. Validation of these combustion technologies is scheduled to begin this fiscal year at Takasago Hydrogen Park that we have introduced to you at a utility-scale power plant. You see a picture on the top right. Also at Takasago Hydrogen Park, in addition to water electrolysis, we plan to being in practical testing on hydrogen products and technologies such as SOEC and methane pyrolysis which are being developed in-house. And there will be -- I would like to explain more in the Chapter 3, next section. This page shows our most advanced gas turbine the JAC series. As I explained in the first page -- and simply replacing a coal-fired thermal power plant and LNG [fire] GTCC system can reduce CO2 emission by almost 65%. It's highly efficient and reliable. And this JAC series gas turbine are perfectly suited to replace coal-fired thermal power with lower carbon-based mode power. This page shows the CO2 capture system at GTCC plant. And from the boiler capturing the heat that we would bring it to this capture [indiscernible] to [CO2] capture system. And in addition to the demand for replacing the coal-fire and thermal power, Europe or U.S., where the commodization efforts are accelerating. The preliminary engineering design for a project to install CC U.S. CO2 capture system, our GTCC plan is on the way. We have received orders for preliminary [indiscernible] and engineering design in Alberta, Canada, Scotland, responding to the needs for further decarbonization. Converting a gas turbine to hydrogen or ammonia can be achieved relatively easy by replacing combustors, while continuing to use original compressor and turbine parts. We have different types, and type three being ammonia, this kind of combustor, we have already developed or they are under development. In comparing gas hydrogen ammonia it can be done to the compressor on the red part on the right-hand side. In compressor and the turbine, it can be utilized just as is, only thing is to replace the combustor. It's a relatively simple process. And on the top right, you see the various type of the combustor -- sorry, bottom right shows the various type of combustor type 1, type 2, type 3 used in hydrogen-fired gas turbine. Since the 1970s MHI has manufactured gas turbine, which use hydrogen-rich of gas from oil refineries, steam [indiscernible] and other facilities. And using a large frame gas turbine combustors, we've successfully completed mixed fire and combustion test at 30% by volume hydrogen in 2018 and 50% by volume hydrogen in 2022. Takasago Hydrogen Park, we plan to validate a mix of hiring up 30% in 2023 using production model gas turbine. Using our small to mid-sized gas turbine combustor, 2022 last year, we have completed the development of 100% hydrogen firing. And we have actual production models or [indiscernible] gas turbine our Takasago Hydrogen Park. We would like to -- we plan to perform validation testing of this technology on the production model gas turbine up during FY 2023. We expect to commercialize 100% hydrogen firing a larger frame gas turbine, by 2030 and in small and midsized gas turbine in 2025 onwards. And ammonia, which is a hydrogen carrier is easier to handle than hydrogen -- is also effective as a carbon-free fuel too. We have started the development of a 40-megawatt class gas turbine system, which directly uses 100% ammonia as a fuel and we are aiming to run on our production equipment and commercialization in 2025 or thereafter. Now this page shows our road map for ammonia-fired power generation. As explained, ammonia similar to hydrogen. It's a clean fuel. And ammonia can be used as hydrogen carrier too for [capture] and for transport as well. And the top picture shows that in -- we expect the commercialization in 2025 after to run on production equipment to uses 100% of Ammonia as a fuel. And for -- we have conducted a mixed combustion test with 20% coal, and later 50% by volume and mix in 2025 time. This slide shows our Takasago Hydrogen Park on the right-hand side, shows path or purview and on the left-hand side shows as of May 2023 how much has been developed. Mid to small size hydrogen position and the large frame DTCC in our production facility where they are placed shown on this picture. And hydrogen and gas turbine are the commercialization to realize that R&D and production and also Takasago machineries where they're doing a verification. We have this Takasago Hydrogen Park is the first in the world where integrated valuation from production to power generation is possible. And right now, partial operations started and preparation for full operations are underway. Regarding hydrogen production system, in addition to water electrolyzers already selected for use, we plan to perform field testing validation of next-generation hydrogen production technology including Turquoise hydrogen. And the use of this demonstration facility is expected to make a significant contribution through the widespread use of hydrogen and the real-world implementation of hydrogen power. And in order to realize a carbon-neutral, the various technology developments are underway in Nagasaki District. We have our R&D center, and we also have Nagasaki Shipyard Machinery Works to handle manufacturing. In order to develop the practical application of cutting-edge [indiscernible] products and technology, we're working as a one group. This shows our R&D and facilities. And these facilities is developing ammonia, [indiscernible], biomass, power, hydrogen production and CCUS, would you contribute to the decarbonization in a wide range of areas. This page shows our hydrogen fired gas turbine project, MHI is participating in the business developing areas leading to the utilization of hydrogen. And around the world, we aim -- we are participating in various development projects and to collaborate within and outside our companies. This map shows our various hydrogen business developing initiatives are in North America, Europe, Singapore and Australia. And in particular, I would like to introduce Intermountain Power in the Utah, the U.S. project using hydrogen fires, GTCC power generation project, and there will be more expansion in the following section. And this page shows in addition to hydrogen, participation to the power generation project using ammonia fuel. This is also around the world, too. There are many power generation projects that we participate using ammonia fuels. In Singapore, we are working together with some multiple power generation companies to investigate the feasibility of commercializing ammonia powered, GTCC power generations. And also many countries also considering installation of ammonia [mixed] firing technologies at existing thermal power plants. And just last year alone, we have executed a cooperation agreement with customers in Thailand, Taiwan, Indonesia, Chile and other countries. From now, I'd like to talk about the efforts to build hydrogen and CO2 as Solutions ecosystem. So let me continue to talk about the efforts to build hydrogen and CO2 solutions ecosystem. [indiscernible] just explained about hydrogen gas turbine. So where to source the hydrogen. The balance sheet is going to be a major challenge [indiscernible] ahead. Not just the products, we are intend to take various initiatives such as the value chain. On this page is showing a high-level image of energy sources and how to produce the hydrogen, where to store and where to be used. That's put together in a summary. In this image, the red boxes are the ones that we develop ourselves, our in-house technologies, all those and the one already provided by us. The gray boxes, for example, mid -- [mid-term] reforming things like that will be achieved by partnering, working with start-ups or other using license from other parties, so we consider those opportunities as well. So within the hydrogen solutions ecosystem, we want to accomplish green hydrogen renewable energy to [indiscernible] at the bottom to go through water electrolysis. And then we obtained hydrogen on water, we transport them as is or transport them in different formats, such as in ammonia. And that could be the final [indiscernible] as a part of the [indiscernible] for maybe using natural gas can be in the blue [indiscernible] to transport and what we call turquoise the one from the -- second from the top, the neutral gas equals methane, so from methane they generate hydrogen, added not the CO2 but [indiscernible] in our solid carbon in a black carbon to discolorant somewhere that is considered at the same time. So many different options are being developed. There's more details to come. On the storing side whereas this hydrogen storage, as we the value chain for hydrogen as once we produce hydrogen, then they are used right away, no need for having a storage location. If at a store, they had to be stored over the different seasons and to continue generating power, the storage also hydrogen and will be a major challenge, and having many huge tanks. Well, if at Takasago location, we are compressing hydrogen, but it can be a huge amount. Most simplest -- the most economic method is to use underground storage. That's underway, which will be mentioned later. So that's the high level of overview. Another key point of how right utilization gas turbine was already introduced by gas engines, hydrogen gas engine and using MHI Engine Turbo is one thing. And hydrogen reduction I were making our subsidiary called Primetals is leading this technology, so this in a reduction are making using hydrogen. Next slide, please. This is about the production of hydrogen. Only speaking, we take water, as the [indiscernible] good alkalize the water electrolysis. In the future, more efficient method [indiscernible] use of turquoise hydrogen, and we are looking at different initiatives, and we are [invest] into major development we're working on right now. Regarding turquoise, so we take the natural gas, we use [indiscernible] to do some and just take out -- we take out the hydrogen and leave the carbon as black carbon. An elemental testing is going on right now. We go through the evaluation, and we expect the commercialization to come in late 20s -- 2030s, and this is going to be also verified at Takasago eventually. SOEC is shown at the bottom. Solid oxide electrolysis cell. So SOEC and reverse reaction is SOEC [indiscernible], can be very high-temperature ceramic -- so the [steam] is going through this [indiscernible] to generate hydrogen more efficiently. So energy efficient is quite good, very high in this methodology. We're looking at such a electrolysis. So we are developing this technology and intend to verify demonstrate at the Takasago Hydrogen Park as well. Next slide. And this is one of the topics we wanted to share. [AGES], advanced green energy storage project. This is taking place in Utah in the United States. So the power coming from this hydrogen can be brought over to the area. So the purpose of this project, on West Coast the U.S., -- there is a lot of -- there is like more advanced in renewable energies using the windmills and solar power. But at the same time, California is very good and weather -- they have very good weather. So good during the summer, but the spring, we have good weather, but not so strong in demand. So from February through June, a huge amount of energy will be available as an excess. So we can store them in Utah, there's already a transmission line existing. So we can send them over to Utah, and we got through electrolysis and we can store them under, the capacity is about 220 megawatts. So 220,000 kilowatts versus electrolyzer established to generate hydrogen and 4 tons per day of hydrogen being produced. So this project in June of 2022, the DOE, Department of Energy [indiscernible] so we made a decision -- investment decision after that. So from the end of last year, we started the construction. Currently, we're making about 40% progress in this project. The picture is too small to see again, will tell what they are. So hydrogen store underground is as follows. So there's a huge [indiscernible] dome. So we [store] in this dome about over 1,000 meters in depth. And we run the water with [indiscernible] and we create a dome, the [indiscernible] is created where we store hydrogen. It's over 1,000 meter in depth. It's very deep. It can be pressurized a lot more. 200 to 300 psi has to be compressed at a higher pressure to be stored. So as a buffer, the amount of storage at about 10,000 tons worth of storage should be ensured. So the we store hydrogen during the summer to be utilized for the peak timing of summer. That's how we can level off the usage throughout the year. And we will have JAC gas turbine, the cutting-edge technology I introduced, until then introduced to generate 840 megawatts. So we can roll out the energy throughout the year. This is a very first trial in a project, attracting a lot of attention globally, and such a huge water electrolyzer is now introduced. There are only about 3 projects with the FIG level. So we need to make sure that we will participate in this effort. Next, CO2 ecosystem or CO2 solutions ecosystem. On Page 24, this is showing the total value chain. As you can imagine, so we take sources of CO2 and bring them over to the storage to be reused. That's what's shown on this page. But there are other options to go. On the next page, this is showing our major efforts in 4 different parts. First is capturing CO2. So for example, out of thermal power plants, the [CO2] is generated, like a gas turbine generate CO2, we capture them as the gas percentage was the same of our plant, it's about 10%. For gas turbine [indiscernible] 4%. We can open in pure CO2. That's the plan, and we transport them and as many different methodologies, basically thinking about pipeline or a marine transport or ground transport. And then storage is next part and recycling that we use of CO2, which using carbon recycling, 2 of the 4 major areas where various initiatives and actions, and starting with CO2 capture, Page 27. So our mission about IRA in the U.S. So when we implement CCUS capture 1 ton of daily CO2, the tax incentive was $85 will be incentivized. So you receive that much of extra credit. So this different could benefit on advantage. On the left, this is expected carbon capture amount in total. So 480 million tons can be captured according to this table or $80 per ton incentivize how much that would be equivalent to JPY 4 trillion. So at this time, actually, and you see some -- it's going to be about $65 per ton with that level of incentives, this is the amount we can expect as incentives. And just on the U.S. market, that's how big that business is, then we provide equipment and facility, we can be engaged in transporting and there are various huge business opportunities. Next actions. The second bullet point, the clean energy demonstration department DOE will be also supporting for a project with the feed stage be supported by them. As you can see, there are 8 projects being selected right now. And on this 8 projects, 3 are using our technologies. They are using our technology in concerning the project. So our technologies are considered to be quite promising. At the far right, there is a pie chart, MHI showing 70% of the pie. This is the first combustion fracture technology area. And that technology, according to the installed bases, comparing to other peers, this is how much we have amount of share. So we have 70% share. In Texas, Petronova client, there's a huge plant and they have a hydrogen demonstration plant, 105,000 tons per day, it's quite a huge contributor, but we are achieving huge [options] now. Our strength of our technology. We continue to seef further efficiency, CO2 capture using -- I mean as a medium to capture and reheated to decompose. So it's quality energy intensive. So we would like to rationalize that. And I mean the amount that we need to melt, we need to avoid degrading. So together with Kansai Electric Power, we've done various joint development and research. And we are using a KS-21 absorbent to do so. So the previous generation having liquid, KS-1 versus more advanced KS-21, the quantitative comparison, the degradation and the volume expectations, those are all summarized here, but there is a high hopes for this new absorbent. And in order to improve our applicability, we can handle all and there are many players who are considering this technology. So we are interested in developing, having a license partner. We [indiscernible] know have license partnership with Italy's [Saipem]. It's a leading Italian engineering company. So we would like in overseas project find a partner of the licensers. And for the smaller scale project or carbon capture in totally different sectors still are making the [Saipem] with the energy, gas engine, there are various verification -- validation underway, and we've been working with these partners on the right since last year. And from Page 29 onwards is about the CO2 transport. Some of the typical example shown on Page 30 shows CO2 transport technology. This photo is -- didn't validate the transport technology within Japan. Locate if either CO2, then from [indiscernible]. We are not transporting it in -- we plan to complete this verification within this year with this vessel. In Japan, there aren't too many pipeline for transport. So we had to rely on maritime transportation, how to scale that is really a key to commercialization. So bigger the vessel is better for us. And we've been working with the various partners to drive our this maritime transport. And in the following Page 31, it's about CO2 storage technology. We don't get into the CO2 storage business. But in order to do CCUS, we need to not only capture but we need to store. Where to store becomes critical. And oil majors are already have access to the land that is appropriate for storage. So energy companies are seeing business opportunity in the CCUS' S part. We just announced an alliance with ExxonMobil for these initiatives. On the right-hand picture shows the plant during study case. Japanese government by 2030 want to validate several projects. And that's already been announced, and MHI is interested in participating in that study. And we do have -- we do need to have several partners to participate, and hopefully, in 2030 time, we would like to realize domestic storage CCS. And lastly, but not least, carbon recycling. CO2 is something that people dislike today. And the reason why we are investing in government cycling. So one, when we will be charged for carbon emission, carbon [fuel] carbon tax. So what carbon, who has emitted in this carbon becomes very important. Verifying that becomes important because [indiscernible] tasks and if you [indiscernible] methanol or [indiscernible] methylene and those synthetic fuels, once there will be a commercialization for the industry use. We need to revisit CO2 as a material to use and understand the nature of CO2 and how to [cut] them, how to source them. So including all that, doing the right network is important. So that's what we are proposing here in this CO2 co2nnex initiatives. We would like to [indiscernible] this effort down the road. This concludes our presentation. So in conclusion, in Page 36, I listed key takeaways. I think R&D development project is showing significant progress, especially in gas turbine of our technology. And regarding development ecosystem, each business is a sizable business. So legal framework needs to be established. Otherwise, we can't start. So there are many players who are starting and trying to establish the right framework, and we would like to offer right information right technology to the marketplace. Anyhow, this is a very important area for our business, and that's all from us. Thank you very much. [Statements in English on this transcript were spoken by an interpreter present on the live call.]