In the realm of clean energy and sustainable solutions, BayoTech has emerged as a leader, navigating the complex landscape of the hydrogen industry with innovation and resilience. Today we sit down with BayoTech's Chief Financial Officer, Jeff Wood, to unravel the narrative of 2023—a year that witnessed triumphs, challenges, and pivotal moments for the company.
This exclusive interview provides a retrospective glance at the successes and hurdles that defined BayoTech's path throughout the past year. Jeff Wood, a key figure in the company's strategic direction, shares insights into the dynamic forces that shaped 2023 and sets the stage for what lies ahead in 2024.
Q: You joined BayoTech in April of last year. So, you're still relatively new to the industry. Tell me a little bit about your background.
What's interesting is my background has all been in energy, but before joining BayoTech almost exclusively in more traditional parts of the energy value chain. So, upstream, the exploration and production of oil and natural gas, through midstream transportation. Prior to BayoTech I had not spent a lot of time in the energy transition space.
One of the things that I found attractive about this opportunity was of course being able to bring a lot of my knowledge about the energy space, and my overall relationships from that industry to one that’s freshly emerging. It's rare to find a place where you feel that there's tremendous potential to be successful for your investors while at the same time, you know you’re able to make a difference. That's one of the things that I've found attractive about being here is that, and this is maybe a little trite to say, but I do believe this is a very mission driven organization. It's just exciting to be part of that mission.
Q: What about the hydrogen industry excited you. And what do you think about the maturity of the hydrogen industry currently?
I think what really excited me about the hydrogen industry is just the massive potential. Hydrogen has always been the fuel of the future and what excited me about BayoTech is that we're on a path to help make hydrogen a fuel of today. So, you've got enormous market potential and a company that's really leading the way to bring that potential into near term reality and decarbonizing the way that we live and drive our energy needs.
Q: Speaking of BayoTech, what were the key milestones and growth points for the company last year?
By far the biggest of those was the completion of our first full scale commercial facility in Wentzville, Missouri. That plant not only validated our technology for efficiently downscaling the production of hydrogen, but more than anything transitions BayoTech from a company that talks about hydrogen production to one of the few that's producing hydrogen outside of the major industrial gas companies.
We're breaking from this traditional model of centralized production serving major industrial players. That model doesn't necessarily work for a lot of emerging market users of hydrogen because the cost to transport hydrogen is so high. So, we've now proven that we're able to provide hydrogen at a competitive cost in a way that brings that production closer to new end users. That’s just a huge milestone and transition point for the company in 2023.
Q: How did BayoTech navigate challenges in the industry landscape and what are the strategies that proved effective for BayoTech?
2023 was a challenging year. What we did at BayoTech was just focus on that core mission. Our technology team has really done some amazing things and we've proved it through the Wentzville facility. We have a good mousetrap, but it's all based on improving established processes and established technologies. We had logged thousands of hours at this point at the pilot plant level, so we were confident that the technology was going to work.
The mission in 2023, against a difficult backdrop, was to put all of that into practice by constructing and commissioning the Wentzville plant while building out our pipeline of future locations. We completed that first plant, and we made great progress in permitting our next two sites in California. So, we were able to, again in a difficult environment, show that we could do it today and that we've got a path where it's repeatable in the future.
Q: What were the prominent headwinds and tailwinds that the industry faced in 2023?
It was a difficult macro environment in 2023. You had high interest rates, high inflation, and really challenging capital markets. Investors a couple of years ago poured money into the promise of hydrogen because it is going to be such an important part of decarbonizing the world's energy needs. Like I said before, the potential of that market is so huge. However, like we saw in other industries, investors today are really focused on the ability of their companies to provide near term returns on those investments.
In a lot of ways, those challenging headwinds work in BayoTech’s favor because we take this very practical approach, again improving on established technology, building out a distributed network of production plants and addressing the challenge of costs for emerging market consumers in terms of transportation and production.
If you need hydrogen molecules in California or in the Midwest to fuel a fleet of transit buses, for example, you can see 80 to 90% of the cost of that hydrogen just in the transportation of those molecules. At BayoTech we’re able to build plans to serve those needs and largely eliminate those transportation costs, and in doing that, we're able to facilitate the adoption of hydrogen for new applications and new markets. We believe what we’re doing is an important part of making hydrogen a reality today and obviously be able to continue to lower emissions and help the world.
In terms of tailwinds, what we've seen is healthy demand across emerging market applications, which is what we intend to serve and that's going to mean great returns for companies who can supply hydrogen today. I think that's why completing Wentzville was such an important win for us.
You're also seeing a lot of government support for developing this entire hydrogen ecosystem. BayoTech is built with that practical approach to succeed without relying on government grants or even price subsidies, but we benefit from the success of the broader industry. So, the government leaning in through grants, DOE loans, the $7B committed to help development of hydrogen hubs across the country, and price support like 45V of the Inflation Reduction Act all help to speed the adoption of hydrogen to more and more industries and those benefits all of us.
Q: How did global events in policy changes impact the industry during the past year?
Well, at least in my corner of the world, rising inflation and interest rates created a difficult supply chain and a difficult funding environment in 2023. Those factors are still high, pretty challenging, but they are starting to improve.
From a policy standpoint, there was a lot of uncertainty and remains some uncertainty around how the treasury is going to decide on the final implementation of 45V and that as you know provides up to $3.00 per kilogram for clean hydrogen production. That initial guidance that we received late in ‘23’ wasn't as favorable as people originally expected. That could negatively impact all of us, but especially those producers relying on higher cost electrolysis. Again, I see that could be a benefit to BayoTech’s business model of focusing on really affordable hydrogen even before government support.
Q: What role did partnerships play in BayoTech’s success in 2023? What do those partnerships look like in 2024?
It takes a village to accomplish what we did last year in completing the Wentzville facility and continuing to provide high pressure transportation equipment to our customers. In doing that, you can't just go it alone, so it has involved several important partnerships.
When I think of the Wentzville facility on the engineering and construction side, we had partners like Opal and PESCO as strategic partners. Our friends at Ranken Technical College, next door to the plant, and Emerson as well, who's helped us to build new systems around the control of our specific plants. In terms of supplying hydrogen molecules, we’re working with partners like Nikola which are really leading the charge to transition the heavy-duty trucking sector away from diesel and to hydrogen. As I look back, those partnerships have really been important, and I think partnerships will continue to take on an even more important role as we move to fully commercialize our technology and build additional production facilities.
We are opening hydrogen to an entirely new type of consumer that may have needs that don't really fit with offtake from the industrial scale production centers. As we view partnerships going forward, those will naturally move to be more commercial in nature. What we as a management team think about all the time is what are the pain points for the players pushing this industry forward and how can BayoTech support them.
Q: Looking at 2024, and considering the experiences of 2023, what is BayoTech’s outlook for the next year?
I think the overall market could continue to be challenging in 2024. It’s going to be influenced by a few factors that we're still really waiting to get some clarity around.
One of those is government support. Will the Treasury loosen its guidance on 45V and allow more hydrogen producers to take advantage of that $3 per kilogram production tax credit? That will influence investment in the industry because it's an important component in driving returns for hydrogen and specifically hydrogen generated through electrolysis. On top of that, how aggressive will the government be in grants and DOE loans and other incentives to support new investment in hydrogen applications and infrastructure?
In a somewhat related aspect is the ability of the larger names in the space to secure non-government capital in this challenging environment. We've seen some action towards that recently and we hope it continues. We want all of these companies to be successful because they grow the overall hydrogen ecosystem and at this stage it's really less about dividing up the pie and more about growing the size of the pie. So, while we think there still will be some challenges, we are more optimistic as we look into 2024.
Against this backdrop we're going to continue to focus on the things that we can directly control which is efficiencies across the organization, safe operation of our facility at Wentzville, developing the second plant in Northern California and building out that backlog of future site locations. That's where we see our path to success, and we think that we should be successful regardless of the market environment.
In retrospect, the hurdles faced by BayoTech in 2023 were met head-on, demonstrating the company's resilience and adaptability in the dynamic hydrogen industry. Insights into the past year provide a clear picture of both the challenges overcome and the victories achieved.
Looking forward to 2024, optimism is high. BayoTech's commitment to innovation and sustainability positions the company for further growth. The hydrogen industry, with its vast potential, is poised for continued progress, and BayoTech is geared up to play a pivotal role in this evolution.