Major electrolyser manufacturers reported continued losses in the most recent quarter, but they are confident a slew of large orders coming down the pipeline will make their businesses profitable.

Accelera, the electrolyser division of US technology company Cummins, and Norwegian manufacturer Nel both reported negative EBITDA for the most recent quarter, while US firm Plug Power also reported negative margins. And UK-based ITM Power announced a year-long scheme to cut costs after reporting significant EBITDA losses for the most recent half earlier in 2023.

The firms have all been in an investment phase, building electrolyser manufacturing capacity while waiting for large orders to be confirmed as green hydrogen projects move to FID on the back of new policy environments in the US and the EU.

Accelera has converted 8,268 km² of the Cummins power generation facility in Minnesota to electrolyser production. Nel is constructing a second production line at its Heroya facility to be completed in April 2024, while Plug Power and ITM have built gigafactories in Rochester in the US and Sheffield in the UK respectively.

Monetising backlogs

All the firms have order backlogs—one of the most important metrics to indicate future profitability—but need those orders to be converted into active contracts before they start to generate positive EBITDA margins. Most remain confident this will happen soon.

“We continue to work towards being EBITDA-neutral in 2027. A big piece of that is this electrolyser revenue growth,” said Mark Smith, CFO at Cummins, speaking on the firm’s second quarter results call.

Cummins has seen costs running higher than originally projected for the year as it scales up its electrolyser division.

Nel similarly sees a positive outlook for the future of its electrolyser division following the passing of the Inflation Reduction Act (IRA) in the US and the establishment of the EU’s legislative framework.

“The big demand spike is yet to come,” Schulz, ITM Power

“The market is there. The projects are getting bigger. We are in a good position and already in advanced discussions with many of these large-scale customers. But exactly when if it will happen… is very hard to say,” said CEO Hakon Volldal on the firm’s Q2 results call.

Meanwhile, Plug Power Chief Strategy Officer Sanjay Shrestha said he sees about 7.5GW of opportunities and as much as $5bn of potential revenue opportunity for the firm over the next 12 months.

ITM similarly believes its plan to cut losses will buy it the time needed to secure more big contracts over the next few months and years.

“The big demand spike is yet to come and we will see significant ramp-up of projects in the next years. And we as ITM will be ready for that,” said ITM CEO Dennis Schulz on a H1 results call earlier in 2023.

ITM's adjusted EBITDA losses of £54.1m ($68.95m) in the first half of 2023 were caused by inventory losses stacking up on top of investment outlay.

“We raised money to pursue an aggressive expansion strategy. And in doing so, we underestimated the skills and competencies that we required as a company to really get that volume going quickly,” said ITM CFO Andy Allen.

Demand has materialised more slowly than expected due to macroeconomic factors, but these are only temporary, Shulz added.

"Peak electricity prices and inflation put electrolysis business cases under a lot of pressure, which leads to some delayed investments. That is a temporary effect, which is giving us now the breathing time required to overcome our issues,” he said.

Improving margins

As orders for larger projects start to come in, electrolyser divisions have the potential to become more profitable as they can be more selective about contracts.

“New contracts have a higher intrinsic margin structure,” said Volldal. “We do not need to take any project just to have something to do… we can be tougher on the margin requirements for Nel.”

Nel is looking to shed many of its legacy projects that have less profitable contract structures and have been hit by rising costs for commodities—particularly nickel and steel.

ITM will also discontinue some legacy products as part of its efficiency programme, according to Schulz.

“The services ITM provides to support older generation technologies were proving too costly,” he said. “We will stop marketing and selling of these products.”

The firm will still fulfil all remaining contractual commitments and warranty obligations.

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Author: Tom Young