Green Hydrogen: Hyper-fuel or hype?
Green hydrogen has fuelled optimism in politicians and investors alike for its potential to decarbonise the trickier sectors of the economy, like heavy industry and long-haul transport. It is a tantalising proposition — hydrogen behaves in a similar way to hydrocarbons, but burns clean, offering a pathway to net zero greenhouse gas (GHG) emissions whilst maintaining life as we know it.
Germany unveiled its national hydrogen strategy[1] in June 2020, dedicating €7 billion to become a world leader in the technology. In July, the EU followed with its hydrogen strategy[2], which seeks to drastically ramp up production over the next decade. Japan has long been enthusiastic about hydrogen and plans to showcase its potential at the Tokyo Olympics. Even the Australian Government, better known for its penchant for coal, launched a hydrogen strategy[3], perhaps after seeing its export potential. A green hydrogen project in Western Australia has since secured AU$300m (US$215m) of investment.
The future sounds bright then, problem solved? Well, not quite. The slight wrinkle is that we’ve been here before — several times actually. The concept of a hydrogen economy was first coined in 1970 and has delivered both promise and disappointment in equal measure over the decades since. There was excitement around hydrogen as a means to energy independence in the wake of the 1970s oil crisis and hydrogen’s popularity as a solution to the looming climate crisis has waxed and waned since the ’90s. You need only look at the experience of hydrogen buses in London for a real-life example of how this cycle has played out.
Hydrogen-powered buses first joined London’s expansive bus fleet in 2004 as part of a three-year trial. The buses were assigned to route RV1, a plum gig, which involved ferrying a handful of passengers along the postcard-pretty streets between London’s landmarks — National Theatre, London Eye, London Bridge and Tower of London. And to start with, the buses only operated in the mornings and early afternoons. Their idyllic routine wouldn’t be out of place in a children’s book.
The hydrogen buses proved popular and an order was placed for eight. The first was unveiled in December 2010 by current UK Prime Minister Boris Johnson (then the mayor of London), who proclaimed it a “marvel of hydrogen technology” and a boost to plans to improve air quality. The buses sported the traditional red livery, replete with rather striking hydrogen Bohr model diagrams. A further two hydrogen buses entered service in later years, bringing the total to 10.
The good times were not to last though. Less than eight years later, route RV1 was cancelled due to poor passenger numbers. The hydrogen buses were relegated to route 444 — a dreary trundle through outer north-east London, between an Overground terminus in Chingford and a bus station near the end of the Piccadilly line. The buses have since been replaced and now sit forlornly at the Lea Interchange bus garage.
Happily, the London hydrogen bus story does not end there. Transport for London has since doubled down (and doubled up) on hydrogen, ordering 20 double-decker hydrogen buses — the first of their kind and a marvel of hydrogen technology — which are due to enter service in 2020. London mayor Sadiq Khan has hailed them as playing a crucial role in improving London’s air quality.
Critics of green hydrogen refer to this and similar examples to argue that the latest surge of interest is just another circuit of the hydrogen bandwagon. They say hydrogen is like Betamax, maybe it is the technically better competitor, but it lost out to another format — battery electric cars. If it was going to make it, it would have made it by now.
Proponents would counter that this time is different. The Paris Agreement and the need to transition to net-zero GHG emissions has fundamentally changed the equation. Hydrogen isn’t like Betamax, no, it is more like Netflix or Amazon — it is competing on a different time horizon and far wider scope than cars.
Both sides have a point. Hydrogen undoubtedly has immense potential, but despite enjoying periods of popularity, commercial success has proven elusive to date. It is not because the underlying technology is particularly complex — unlike, say, nuclear fusion — rather it has always suffered from the same chicken and egg infrastructure problem. The big unknown is whether there is now sufficient interest and need to overcome this and other challenges.
It is natural to try to pit green technologies against each other, but that is not the right way to think about solving climate change. Reaching net-zero emissions is a crucially important objective, yet fiendishly difficult. There is no silver bullet, rather the world needs multiple technologies and solutions. Green hydrogen offers the potential to decarbonise stubborn sectors of the economy that have few alternatives — that alone is worth dedicating significant resources and research.
Hydrogen’s true colours
Hydrogen is a versatile and storable fuel, which can be used to generate heat and electricity and as an industrial feedstock for chemicals and products. Today, it is primarily used for oil refining and in ammonia production for fertiliser.
Hydrogen is the lightest element and the most abundant chemical substance in the universe. However, it does not exist in large deposits like natural gas and must be manufactured. Hydrogen is, of course, colourless, but it is ascribed a different colour based on the way it is produced:
· Black/grey/brown hydrogen — produced by coal, natural gas and lignite respectively using a process that emits greenhouse gases.
· Blue hydrogen — produced by fossil fuels, albeit with carbon capture and storage (CCS).
· Green hydrogen — produced by electrolysis (separating water into hydrogen and oxygen) using renewable energy.
Currently, hydrogen is almost entirely (99%) produced using natural gas and coal, resulting in CO2 emissions equivalent to those of the UK and Indonesia combined[4]. Recent interest, and the focus of this article, is on green hydrogen.
The opportunities
In order to achieve the aim of the Paris Agreement — to limit the increase in global temperatures to well below 2°C — global GHG emissions will need to reach zero by 2050 at the latest[5]. A growing number of countries, including the UK, have legislated a transition to net-zero emissions by 2050. Setting a target is commendable and necessary, but it is the relatively easy part. Leaders now urgently need to contend with thornier challenge of achieving it.
Shifting to renewable electricity generation will play an important role, but it won’t be enough in isolation. Electricity and heat production only account for a quarter of total emissions[6]. Different solutions will be needed to decarbonise other sectors — and that’s where green hydrogen comes into play.
A report prepared by the Hydrogen Council[7], with input from McKinsey, examined 35 new and existing applications of hydrogen in areas that account for 60% of global energy and process related emissions. It found that for 22 of these applications, hydrogen will become the most competitive low-carbon solution by 2030 and in some cases, will outcompete conventional (fossil fuel) options, such as long-haul trucks, trains and buses.
The Hydrogen Council is not the only one who sees an outsized future role for hydrogen. The UK Committee on Climate Change’s (UK CCC) report to parliament[8] on reaching net zero emissions highlighted that the development of a hydrogen economy is a vital step. In the UK CCC’s central net-zero scenario, UK hydrogen production capacity will need to grow to the size of the UK’s current fleet of gas-fired power stations by 2050.
The EU Hydrogen Strategy also envisages an important role: “Renewable hydrogen is the most compatible option with the EU’s climate neutrality and zero pollution goal in the long term and the most coherent with an integrated energy system.” The EU seeks to rapidly scale up green hydrogen production so that it can be deployed at scale by 2030.
Bloomberg NEF has attempted to quantify the potential market for green hydrogen[9]. It estimates that hydrogen could supply 24% of the world’s energy needs by 2050 if strong policies — such as net-zero legislation, carbon pricing and hydrogen subsidies — are in force, although the maximum potential is even higher, as shown in the chart below. The strong policies scenario would require $11 trillion of investment and annual sales of hydrogen would reach $700 bn per annum.
Figure 1 — Projected demand for hydrogen
Consistent with the Hydrogen Council, Bloomberg NEF finds that hydrogen will be most competitive in decarbonising long-haul buses and trucks. It will be relatively more costly to decarbonise other sectors. For example, hydrogen could decarbonise the production of steel and cement, but at a cost of $60 per tonne of CO2 — this is higher than the current trading price in the EU Emissions Trading Scheme, although it is lower than the global carbon price of $75 per tonne by 2030 recommended by the International Monetary Fund (IMF)[10]. The cost varies by sector (see chart below) and is likely to prohibitively expensive in some sectors, such as space and water heating.
Figure 2 — Cost of CO2 abatement using hydrogen
The challenges
There are reasons why hydrogen has been such a slow starter — it faces some hefty challenges that must be overcome before it can achieve widespread adoption. These challenges are, however, not insurmountable and pale in comparison to the difficulty of reaching net-zero GHG emissions.
1) Green hydrogen is currently too expensive to produce
Green hydrogen is currently too expensive. At $2.50 to $4.50 per kilogram, it is more expensive than natural gas as well as hydrogen produced from fossil fuels. However, costs are coming down. Electrolysers made in the West dropped by 40% over 2014 to 2019 and Chinese made systems are already 80% cheaper.
Increasing scale combined with continued reductions in the cost of renewable energy will reduce the cost further. Bloomberg NEF projects that the cost of producing green hydrogen will fall to between $0.7 and $1.6 per kg by 2050 in most parts of the world, as shown in the chat below. This would make it cheaper than grey/black hydrogen and competitive with natural gas.
Figure 3 — Projected cost of hydrogen production
2) Green hydrogen is costly to transport
Hydrogen contains more energy per unit of mass than natural gas or gasoline, but has lower energy density per unit of volume — about a third of natural gas[11]. This means that larger volumes of hydrogen need to be transported compared to natural gas to meet the same energy demand.
Low cost transport options are possible, but these will require significant infrastructure investment. Pipelines are an efficient way to shift hydrogen, as it flows nearly three times faster than methane. Repurposing existing natural gas pipelines will help reduce the need for new infrastructure, but will not be sufficient in isolation. For longer distances (above 1,500km), shipping hydrogen as ammonia or in liquid organic carriers is the most efficient option.
Transport expenses can also be reduced by careful planning. Producing hydrogen close to end users, such as industrial precincts, minimises transport costs and increases competitiveness.
3) Green hydrogen requires massive infrastructure investment
Hydrogen infrastructure has historically been a bit of a catch-22. For example, consumers will not buy hydrogen-powered cars until they can be sure that they can fill up whenever and wherever they need to. Filling stations will not invest in hydrogen refuelling infrastructure until they are confident there are enough hydrogen cars on the road to generate sufficient demand.
Infrastructure challenges stretch well beyond filling stations. Green hydrogen will require a significant increase in storage capacity, owing to the lower density discussed earlier. Production and supply chains will need to be created from scratch in some cases.
Some challenges will be easier than others. For example, UK’s National Grid is planning to test blends of hydrogen with a view to using these in existing gas networks. Boiler manufacturers are already producing ‘hydrogen-ready’ models in preparation.
Building hydrogen refilling infrastructure along the motorways that long-haul trucks and buses travel will be more attractive than attempting to add hydrogen pumps at obscure suburban filling stations.
Governments will ultimately need to invest in the required infrastructure to help create a critical mass. These investments are likely to pay-off handsomely in the longer term. Countries and regions rich in renewable resources have the opportunity to establish themselves as major exporters of green hydrogen, creating new industries and jobs in the process, with an associated boost to the economy. For example, Australia could produce green hydrogen from solar PV in the north and then ship to Japan and other nearby energy hungry countries, utilising existing gas infrastructure where possible.
4) Green hydrogen will require a step change in renewable electricity production
Producing green hydrogen requires large amounts of renewable electricity. Bloomberg NEF estimates that producing enough green hydrogen to meet 24% of the world’s energy needs — in their strong policies scenario — would require more electricity than is currently produced worldwide from all sources.
Critics argue that the energy requirements of green hydrogen make it unfeasible — they say the focus should be on reaching 100% renewable electricity first. However, the electricity requirements of green hydrogen could give investors greater confidence in future demand and hence the return on their investments. As a result, green hydrogen could actually help accelerate, not hinder, investment in renewables.
The International Renewable Energy Agency (IRENA) sees synergies between green hydrogen and renewable energy[12]. It argues that green hydrogen production can play a key role in smoothing the supply of renewable electricity by soaking up surplus supply.
Nevertheless, the demand for renewable electricity will mean that small countries with dense populations, like Japan, South Korea and parts of Europe, will not be able to produce enough to meet their own needs and will rely on imports. This is not a new problem — many countries currently rely on energy imports — and will create opportunities for global trade.
The final verdict
Green hydrogen is certainly not a silver bullet and is not without significant challenges. However, it has the potential to be the most effective solution to decarbonise the trickier sectors of the economy, reducing global emissions by up to 20%[13]. For that reason alone, it is sufficiently credible to merit support from governments and investors.
While it is true that hydrogen has overpromised and undelivered for decades, in the words of the International Energy Agency (IEA), “…there is a strong chance that this time could, in fact, be different…” The climate crisis and the need to reach net-zero emissions before 2050 have fundamentally changed the equation. Hydrogen’s benefits are now likely to exceed its weaknesses and challenges.
Green hydrogen cannot go it alone though — it will need substantial support from governments and investors. Three measures alone could be gamechangers:
· Carbon pricing — carbon pricing addresses a market failure by adjusting for the environmental and social cost of GHG emissions. Carbon pricing will help low-carbon technologies, including green hydrogen, outcompete fossil fuel alternatives and will spur innovation and investment. Current carbon pricing schemes are inadequate and lack coverage. Governments should enlist the power of market forces by either implementing, or strengthening, carbon pricing even though this can be a difficult sell, as discussed in my previous article.
· Net-zero legislation — while all countries have now signed up to the Paris Agreement[14], the sum of commitments to date is not nearly strong enough to achieve its objectives. Governments need to strengthen their targets. A good start would be to join the UK and other leaders by legislating a pathway to net-zero GHG emissions. Doing so will increase investor confidence in zero-emission technologies such as green hydrogen.
· Infrastructure — as discussed earlier, governments should follow Germany and the EU’s lead and invest in infrastructure to support green hydrogen to reach scale and become viable. The upside will be the creation of new industries, export opportunities and jobs.
Perhaps support for green hydrogen will be a bit like London buses — a seemingly endless wait and then it will arrive all at once.
References:
[1] “The National Hydrogen Strategy” (June 2020), Federal Ministry for Economic Affairs and Energy, Public Relations Division, Bundesregierung.
[2] “A hydrogen strategy for a climate-neutral Europe” (July 2020), European Commission.
[3] “Australia’s National Hydrogen Strategy” (2019) COAG Energy Council Hydrogen Working Group
[4] “The Future of Hydrogen” (June 2019) IEA
[5] “Global warming of 1.5°C” (2018), IPCC.
[6] “Fifth Assessment Report of the Intergovernmental Panel on Climate Change” (2014) IPCC. Figure 1.7 Greenhouse gas emissions by economic sectors.
[7] “Path to hydrogen competitiveness” (January 2020), Hydrogen Council.
[8] “Net Zero: The UK’s contribution to stopping global warming” (2019), UK CCC.
[9] “Hydrogen Economy Outlook” (2020), Bloomberg NEF.
[10]“Fiscal Monitor: How to Mitigate Climate Change” (October 2019), IMF.
[11] Table 2 (p35) of the IEA’s “Future of Hydrogen” report.
[12] “Hydrogen: A Renewable Energy Perspective” (2019), IRENA.
[13]As estimated by Bloomberg NEF with a carbon price of $100 per tonne CO2.
[14] Trump has started the process to withdraw the United States from the Paris Agreement. The earliest possible effective withdrawal date is 4 November 2020.
