Deal focus: Quiet confidence persists in hydrogen power

Elon Musk has been famously ranting about “mindbogglingly stupid” fuel cells for years now, coining the phrase “fool cells” and effectively dismissing the idea of hydrogen as fuel altogether. This doesn’t sit well with Toby Chan, co-founder and a partner at Hong Kong’s Audacy Ventures, which just made its third investment in hydrogen energy.

The latest investment is Singapore-based H3 Dynamics, which has commercialized a hydrogen-powered drone business for various enterprise and industrial applications but ultimately seeks to revolutionize the commercial airline industry.

Audacy’s previous moves in this space include US-based players Hyzon Motors, which specializes in zero-emission heavy-duty trucks, and GenH2, an energy infrastructure provided founded by ex-NASA engineers.

Chan admits that Musk may have a point when it comes to making the most economic choices for normal passenger cars. Most notably, hydrogen fuel cells are less energy-efficient than lithium-ion batteries.

But there’s more to the hydrogen opportunity than automotive. The shipping, logistics, power utility, and aeronautics industries are set to be key beneficiaries of the technology, which has significant advantages in terms of weight versus electric batteries.

“There are some things batteries can do that hydrogen can’t, but in places where solar and wind resources are so abundant that the grid can’t handle it, such as Australia, where do you store it?” says Chan. “Storing it in batteries is one solution. But storing it in chemical bonds and hydrogen is much more transportable. There are different use-cases.”

H3 Dynamics has raised a $26 million Series B round led by Japan’s Sparx Asset Management. In addition to Audacy, support came from Grosvenor Group, Capital Management Group, Ascent Hydrogen Fund, Singaporean government investor EDBI, and ATEQ, a French company that makes electronic measurement equipment.

H3 Dynamics was founded by Taras Wankewycz, who has been working on hydrogen-powered flight since 2006. This background includes stints with NASA and co-founding Horizon Educational, the parent company of Hyzon Motors.

The road to hydrogen-powered jumbo jets is long – Wankewycz estimates even small flying hydrogen taxis are at least 10 years away – so a number of revenue-generating schemes are being pursued in the meantime. Most of this work involves urban drone delivery services and plans for cloud-connected “vertiports” on skyscraper rooftops.

The Series B capital basically allows the company to hire new management for the drone business, giving Wankewycz time to concentrate on the master plan. The most ambitious goal here is the development of a full-sized passenger aircraft with “hydrogen propulsion pods” distributed along the wings instead of turboprops. A transatlantic test flight is scheduled for next year.

For Audacy, a returns-focused investor, the end goal is largely about impact. This is reflected in the rest of its portfolio, including solar power company Shift Energy, industrial-grade batter maker AMPD Energy, and Block.Aero, a smart contracts technology supplier to the aviation industry.

“We want to open up investment opportunities for impact-oriented investors who have a personal or family passion to contribute to energy transition,” Chan says. “That’s why we built this platform.”

Audacy was founded in 2017 with a view to helping regional family offices diversify out of traditional industries into deep tech areas related to decarbonization. The strategy is being pursued deal-by-deal, although there is scope for discretionary mandates going forward.

“The last 3-4 years, we’ve been educating really risk-averse and traditional family offices. Some of them might never have done any private investments, but something like Evergrande is helping us show them that real estate, for example, is not always stable,” Chan said, evoking the Chinese property giant now mired in a massive liquidity crisis.

“We’re helping them learn about where the new economy is going, where the world is going, and what needs to be done. These are areas where we need to deploy not only to save the world, but because this is where the opportunities are.”

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• Topics
• Southeast Asia
• Cleantech
• Industrials
• Early-stage
• Singapore
• energy
• energy storage
• Audacy Ventures
• EDBI