Today, Equipment. Tomorrow, Whole Facilities: Hydrogen Could Fuel A New Industrial CRE Revolution

The traditionally oil and gas city that bills itself as The Energy Capital of the World is increasingly planning ahead for a clean fuel source that is seeing a surge of interest and federal funding: hydrogen.

The energy source isn't fully powering any Houston commercial buildings just yet. But industrial properties are well along the path to that destination, already employing hydrogen to fuel industrial equipment and supply chain vehicles as the technology quickly works its way into the industry. 

“Hydrogen is now coming back into focus,” said Harish Krishnamoorthy, an associate professor at the University of Houston who researches utility grid integration of renewable energy, pointing to the Department of Energy’s $7B investment aimed at building seven clean hydrogen production and distribution hubs across the country, including HiVelocity Hub, slated for Houston.

“For commercial buildings, we have already been using hydrogen,” Krishnamoorthy added. “And it’s only going to grow.” 

Investment in North American hydrogen production jumped by nearly two-thirds from 2022 to 2023, coming in at $46B. Hydrogen is a few years away from going mainstream as a primary energy source, according to the National Renewable Energy Laboratory, citing the need for new technology to efficiently store and transport it.

Yet industrial real estate is one of the fuel's earliest adopters in smaller ways and its significance is likely to only spiral, sources told Bisnow. The federal push and new clean vehicle mandates are speeding that along. 

At Bisnow’s Houston Industrial Pulse event last month, two panelists cited examples of using hydrogen power at local industrial projects to charge and power trucks, forklifts and other equipment.

Nazir Khalfe, Houston-based principal at Powers Brown Architecture, said hydrogen-powered trucks are becoming a local and national trend as nonpolluting vehicle mandates approach, including in Texas.  

Hydrogen fuel is a logical option because the infrastructure and batteries needed to charge and power electric trucks are clunky, heavy and, in some cases, nonexistent, he said. 

“You can’t install enough chargers for the demand,” Khalfe said.

In addition, hydrogen-powered trucks don’t require buildings to boost amperage to charge them, significantly reducing the need for new transformers and cutting the already-often-delayed time frame of powering up new buildings, he said.

“This will be something that will provide less of a burden on the buildings, the hydrogen method,” Khalfe said. 

Elsewhere in the Houston region, a partnership between BG Capital and FreezPak Logistics is building a 282K SF, $102M cold storage facility at 7818 Fisher Road in Baytown. It marks the fifth project in which BG Capital has utilized hydrogen to power forklifts and other equipment inside the building, BG Capital Managing Principal and President Joe Byrne said.

Part of the reason is the fuel's efficiency in cold temperatures, Byrne said. The new facility will be kept well below zero degrees Fahrenheit, and hydrogen can heat enclosed forklifts without killing battery after battery like electric forklifts would, he said. Hydrogen forklifts also come with a 90-second charge time, as opposed to 30 minutes for an electric forklift, he said.

Cutting down on charging time and circumventing occupational regulations that limit time spent exposed to extremely cold temperatures creates huge cost savings for tenants, Byrne said.

“Labor is one of the biggest expenses besides rent and utilities for any [third-party logistics company],” he said, adding that the use of hydrogen power over electrical also provides more usable space in a building since it doesn't require a 900K SF battery room, Byrne said. 

BG Capital has a partnership with Plug Power to provide hydrogen, which sits in a two-story tank outside of its buildings. 

Plug Power’s fuel cell power generation system can help supplement power supply in many places where “electric grid users can't get enough safe, reliable, clean energy to operate,” the company said in a statement, citing its network of 60,000 fuel cells and 200 fueling stations across customer sites nationally.

Some of the nation's largest occupiers of industrial space are among Plug Power's customers, including Amazon, Walmart and Home Depot, the company said.

But before it gains more widespread use, costs might have to come down. The price tag for converting to hydrogen-powered equipment and the fuel itself can be prohibitive, Krishnamoorthy said, adding that it is likely the main factor stopping it from being more widely used.

Hydrogen power represented a major upfront cost for BG Capital, but one that Byrne believes will pay off. That might not be the case for other industrial projects, he said.

“Is the upfront expense of implementing hydrogen going to pencil for you in a development perspective, because then your rental rate's going to be increased? The answer is probably no,” Byrne said. 

Hydrogen is not necessarily emission-free, either, depending on how it is produced. Gray hydrogen uses natural gas to generate fuel, emitting greenhouse gasses. Blue hydrogen uses natural gas but captures the emissions and sequesters or stores them underground. 

Green hydrogen uses electrolysis, creating hydrogen without any harmful emissions, Krishnamoorthy said.

“We have the technologies, it’s just that [green hydrogen is] about five times the cost than the traditional methane reforming,” he said, adding that it is a priority to create green hydrogen in a more cost-effective manner. 

Companies like ExxonMobil are considering developing facilities to produce billions of cubic feet worth of hydrogen, Krishnamoorthy said. 

The company announced plans early last year to develop its “first world-scale plant for the production of low-carbon hydrogen” at its refining and petrochemical facility at Baytown, though a lack of incentives included in draft rules issued by the Treasury Department late last year could put the project at risk, the Houston Chronicle reported. 

“When they do it at that scale, maybe the overall costs involved may be cheaper and hydrogen may become more viable,” Krishnamoorthy said.

ExxonMobil is part of HiVelocity Hub, one of the seven clean hydrogen hubs to be funded by the DOE’s $7B. The Houston-based center plans to use a mix of blue and green methods to produce hydrogen with the help of $1.2B in federal funding.

According to Krishnamoorthy, this is just the start. Over the next decade, there will be more facilities generating hydrogen and more buildings using hydrogen as a primary fuel.

“It is almost imminent,” he said, adding that realization is dawning that battery-based energy storage is insufficient for some needs, while wind turbines and solar power are not completely dependable. Those energy sources are also suffering from a nationwide transformer shortage. 

Once a network exists to distribute it throughout the country and the cost comes down, hydrogen will go mainstream, Byrne said.

“It takes time to build that infrastructure, but once you figure that out, it’s a game-changer,” he said.

No one is yet installing spec hydrogen in industrial projects, Khalfe said at the Bisnow event. But it could be coming.

“The infrastructure to get that done is a whole lot easier than waiting 52 weeks for a transformer because electrical trucks take so much more power,” he said.