Clean, Green, Hydrogen Fuel
Part One: A comprehensive overview on the viability of hydrogen in production, storage, fuelling and investment in a fossil-fuel-free economy.
HYDROGEN | H1
A lot of talk has been made of hydrogen in recent months as countries around the world debate the transition away from fossil fuels, in a desperate attempt at reducing carbon emissions to slow the effects of climate change. But most research has missed the point of the debate. This isn’t about whether hydrogen is a better fuel for short-term economics.
The following report and numerous others identify that hydrogen, with current sequestering and fuel cell technology is too inefficient to compete on price with fossil fuels and natural gas. Instead, the debate is about sustainability, and survival. Governments and entrepreneurial organisations are taking actions today, to create a sustainable fuel source for humans, that will allow us to continue develop as a society, without the resource constraints and environmental impacts that fossil fuels bring.
The following is the first in a three-series report, that will investigate hydrogen’s potential use cases and viability as a fuel, rounded off with opportunities and implications for the investment industry. Part one will lead the series, covering hydrogen as an element, storing hydrogen, fuel cases, economic implications and government initiatives. Part two will change tact, and discuss how low-carbon investments can help the global economy meet climate change targets. Part three will discuss venture capital’s role in building the sector, including investment opportunities to help entrepreneurs create a sustainable future.
THE ELEMENT
Hydrogen, naturally a colourless, odourless gas, is the lightest and most abundant element on the planet. Yet, it is not naturally occurring as a stand-alone element, instead being found in covalent compounds with most non-metallic elements or in molecular form (water, petroleum, biomass). This means, to utilise hydrogen as a fuel, it must be divided from its atomic compounds via conversion processes including steam reformation and electrolysis (more on this later).
PRODUCTION
Proponents of the gas are quick to point out hydrogens lack of toxic emissions in electricity production — carmaker Hyundai has a raw illustration of this in one of their most recent ads. Such claims are largely down to the inputs involved.
Electrolysis is the technique used in both hydrogen production, and fuel cell technology. And, unlike the combustion of fuel in an internal combustion engine (ICE), electrolysis is driven by a chemical reaction of its inputs (water & air), that powers electrical currents through H20, splitting the two components into their respective gases (hydrogen & oxygen). While different electrolysis technology exists, the equipment is commonly composed of precious metal cathodes, which increase the production costs of an already technologically inefficient conversion method.
Steam-methane reformation (from natural gas) is the leading alternative in hydrogen production, and is inherently cheaper than electrolysis for hydrogen production, as the technology and capital equipment required is less expensive. Steam reformation is driven by temperature & pressure, combining the carbon in methane, and oxygen in water. Unlike electrolysis, this produces CO2 & hydrogen gases. Thus, to create net carbon zero electricity we must apply carbon capture & storage (CCS) to negate carbon emissions.
Methane splitting is a third, but less developed option to hydrogen production. It involves sending alternating current through three-phase plasma using methane as a feedstock and electricity as energy to produce hydrogen with as little as three to five times less electricity than electrolysis. Drawbacks including significant efficiency losses with temperature drops. Fortunately, methane splitting comes with the possibility of additional revenues streams as, though it produces both carbon and hydrogen, carbon is produced in solid-state form offering sale possibilities for tyres, rubber and plastics.[1]
Final state hydrogen, or hydrogen detached from its compounds, falls into three categories, brown, blue and green hydrogen. Brown hydrogen comes from natural gas or coal with CO2 is released as a by-product. It’s considered blue when the CO2 emitted can be captured and sequestered from natural gas in a process called carbon capture & storage (CCS). Finally, the name ‘green hydrogen’ is given when it comes from renewable sources — wind, solar, hydro, geothermal. Green hydrogen is the end goal for most countries, as renewable sources produce no carbon dioxide by-products.
STORAGE & EXPORT
Hydrogen isn’t the first in the way of so-called ‘green’ energy initiatives to hit our screens. Renewable energy in the form of hydro, solar and wind has been around for decades, albeit with heavy criticism for its lack of ability to store energy at off-peak times.
Enter hydrogen. Hydrogen can be converted from renewable energy during on-peak hours, immediately into hydrogen, stored (and potentially exported), and then converted back into electricity during off-peak hours to dampen supply-demand imbalances, and hence energy prices. As the share of variable renewable sources such as wind and solar increases, so too does the need for storage to ‘firm’ the supply and facilitate diurnal and seasonal shifts in renewable electricity generation to give grid reliability.
Like anything, hydrogen storage is not without its shortcomings. Hydrogen storage is predominately done via compression, liquefaction or chemically in materials such as metal hydrides (a synthetically produced compound of metal + hydrogen).
Liquid storage
Unfortunately, this is not as easy as it may seem. The boiling point of hydrogen is a chilling -259.2C, requiring cryogenic freezing, large thermos tanks, or underground reservoirs to maintain its liquid form. Furthermore, cryogenically freezing hydrogen can make metal brittle, exposing it to more frequent breaks, and thus hydrogen leaks. This, without further evolution of our storage capabilities, limits our ability to store hydrogen in the interim, especially in areas with few salt caverns, depleted gas or oil reservoirs (where hydrogen has historically been stored).
Gas storage
Why not store hydrogen in its gaseous form? Gas has its own drawbacks. Hydrogen has more energy density per kg m -3 (weight) than known common fuels. This is what allows fast hydrogen refuelling and long driving ranges (more on this later). It also means very high pressures inside storage tanks are required to offset hydrogen’s rapid diffusion characteristics in low atmospheric pressure environments (air). These same characteristics make hydrogen prone to slow leaks. University of Auckland Professor of Engineering Harvey Weake went on to suggest “a national certification system will need to be rigorously enforced to ensure older cars do not explode.”
Further complicating matters, such large cooling and pressure demands result in bulky, heavy storage tanks, that are cost inefficient for transportation.
“To remain in liquid form at 200C below freezing, large volumes of hydrogen require one seriously large thermos flask. Think of more than two thousand Olympic swimming pool-size thermos flasks to store energy equivalent to New Zealand’s hydro energy storage.”
-Fraser Whineray, CEO Mercury Energy
Metal Organic Frameworks
Fortunately, innovative solutions are currently being developed, to store hydrogen in what is known as metal organic frameworks (MOF). Solid materials-based hydrogen storage may be preferable to compressed and liquid hydrogen storage, in that MOFs store it in a safer, light, and more efficient manner. (An analysis of the science can be found here).
A simple analogy best describes the concept. Picture a kitchen sponge. Lightweight and pore filled, they soak up water by increasing the surface area on which water attaches. MOFs have similar crystalline structures built from metal ions that store hydrogen via molecular hydrogen binding (physisorption) or predominantly stronger binding of atomic hydrogen (chemisorption) forming a new compound. The electrochemical properties of these new compounds have applications both as electrolytes & electrode catalysts within fuel cells, or as electrolyte materials in lithium-ion rechargeable batteries.
Refrain your excitement for MOF for now. Development of these storage systems are not yet built at any large scale, with prototype-developers and university researchers making the largest fuss about the area currently.
Ammonia
To be exhaustive in my list there is the potential to store hydrogen via chemical bonds in the form of ammonia. But again, without significant equipment developments, the increased technology costs make for a more expensive round trip for energy conversion than direct hydrogen storage.
HYDROGEN AS A FUEL
In some senses, hydrogen may seem redundant as a transport fuel, given recent improvements in battery technology, and the increasing popularity of electric cars. But batteries do have their limits. Without this transforming into a lithium battery discussion, the ratio of power to battery weight creates significant disadvantages for long distance, or heavy vehicle transport.
Long distance transport
Hydrogen offers a solution for heavy vehicle and long distance transport, where batteries fail to fill the gap. It’s high density properties, and quick refuelling times allow it to be used much like traditional gasoline and diesel in terms of refuelling, in addition to the energy to power heavy vehicles without adding sizeable battery weight to already heavy cargo loads. It’s possible to imagine a world where batteries power inner city vehicles, with hydrogen used on a more industrial, or inter-city scale. An electric-hydrogen hybrid vehicle could also command the interest of environmental groups and car manufacturers alike, but we will refrain from further hypotheticals in this report.
Fuel cells
Important to the use of hydrogen as a fuel, is the conversion process from hydrogen to electricity. Fuel cells facilitate chemical reactions from hydrogen to electricity, by passing hydrogen & air through two electrodes (metal catalysts). The anode (a type of electrode) strips the electron from the hydrogen atom, positively charging the hydrogen, while the negatively charged electron flows along a series of wires that powers the motor. Oxygen from air enters the cathode, and meets with the positively charged hydrogen, creating water as a by-product of conversion.
The problem, energy lost during the fuel-to-energy conversion is a large limiting factor for today’s fuel cell technology. While many academics debate the theoretical maximum efficiency of fuel cells, developers are stuck well below any theoretical maximum. Ultimately, fuel cell technology has not advanced to the stage where we can get comparable energy efficiency levels from fuel cells, as we can from electric vehicles (EV) and internal combustion engines (ICE), leading to several important economic implications integrating hydrogen into the economy.
ECONOMICS of HYDROGEN
Unlike crude oil, soybeans or corn, there is no traded market for the price of hydrogen. We can, nonetheless, derive a price of hydrogen per kg (kgH2) by identifying cost drivers (inputs): water, energy (gas) and production equipment.
Cost of equipment
Hydrogen and natural gas share enough similar gaseous properties that it is possible to utilise existing natural gas pipelines, reducing expenditure required. That’s not to say maintenance and repair costs will be incurred. Infrastructure will need to meet heightened standards to handle hydrogen at 14x lighter than air, with diffusion 3.8x quicker than natural gas in atmosphere. There is also an inherent trade off to using existing infrastructure, as we must retire natural gas use in those channels. We simply cannot run both fuels concurrently through the pipes.
Existing infrastructure is also critiqued for not being able to withstand the increased electricity demand that would come with hydrogen use. Electricity conversion inefficiencies draw greater demands from infrastructure, with the Productivity Commission (NZ) estimating electricity usage increasing by 45–65% by 2050. The International Energy Agency (IEA) in 2019 also noted some safety concerns occurring when blending hydrogen and natural gas, which reduced the potency of energy, making the conversion even more inefficient.
Less efficiency, thus requires greater energy generation to offset the losses, requiring further infrastructure development by way of more wind farms, solar panels, or other renewable sources. Approximately 270 new wind turbines by 2050 if we are to believe Transpower’s 2018 findings. Even if we remain hesitant of the estimates, the technological limitations have clear energy (supply) implications that will need to be addressed through increased capital expenditures or technology improvements.
Gas pricing
Energy input costs are merely a derivative of market (or production) prices for natural gas. A natural production advantage logically goes to economies who export natural gas and have an oversupply. Importers of natural gas face higher natural gas prices, and thus higher hydrogen production prices. Yet, while natural gas remains cheaper to produce than renewable energy, NZ is in a unique position, where it has disproportionally larger share of renewable energy than most countries, positioning it more favourably for green energy generation and potentially green energy exports.
User adoption
That being said, there remains little cost incentive for early adopters of hydrogen fuel to utilise the fuel at a commercial level. While declining renewable energy costs are making hydrogen production increasingly more attractive, it still exceeds natural gas prices, even before incremental infrastructure costs are factored in.
“Before a trucking company starts replacing its fleet with hydrogen powered trucks, it needs to know the infrastructure is there to support it.”
-Andrew Clennet, CEO Hiringa Energy
Hydrogen promoters must remain cognisant of the fact: large infrastructure investments are risky. Heavy upfront costs with prolonged payoffs make for poor economics. It’s a difficult trade-off. Especially as investment would grease the wheels of change for hydrogen fuel adoption, without which consumer’s lack incentives to change.
Economic viability
One crucial test to determine the economic viability of hydrogen, will be whether it can compete on a cost basis with natural gas. The nature of the product however, brings about logistical challenges that were only touched upon earlier. Ignoring the inherent storage requirements, export competitive hydrogen will likely need to be centrally produced (both by electrolysis and steam-methane reforming) as its low-density properties (energy per unit volume) and bulky storage units make it relatively expensive to move by truck. Choosing a few well-placed centres for hydrogen generation will be a critical (and expensive) process.
“… large cooling and pressure demands result in bulky, heavy storage tanks, that are cost inefficient for transportation.”
A high cost of CO2 emission per tonne could be an economic driver that would start to make hydrogen attractive to businesses. But, by increasing costs even temporarily, NZ exports would likely become uncompetitive on the world stage.
Intermediate solutions
In the interim, the most cost efficient manner currently available, would appear to be utilising natural gas pathways, and extracting the hydrogen from methane and other greenhouse gases using CCS. This may be essential in allowing hydrogen production to scale, before renewable producers can generate the economies of scale required to assume a larger market share. This is especially so within NZ. The governments ban of oil exploration permits off Taranaki have discouraged investment from the region. While less money is fuelling oil drilling, there is similarly less capital on hand for cleaner fuel investments. Hiringa Energy for one, are hoping the use of CCS on existing natural gas outlets will help retain ‘oil money’, while green hydrogen production becomes more attractive.
At the end of the day, for hydrogen to make a significant contribution to clean energy transitions, it needs to be adopted in sectors where it is almost completely absent, such as transport, buildings and power generation. This will be a challenge. With billions of dollars entrenched in long positions for oil & gas production, the largest barrier may be convincing the largest power producers that change is in their best interests.
GLOBAL ACTION
Those taking the leap are not without help. The NZ government has been vigilant from a legislation perspective, in taking steps to ensure the development of hydrogen fuels nationwide. The centre piece of their actions is the green paper on hydrogen, that posits their goal for NZ to be net zero carbon emissions by 2050.
Private-Public Partnerships
International efforts are also streaming out of China and Japan, amongst others. In 2018, NZ signed a collaborative agreement with Japan, a powerhouse in hydrogen technology, to promote hydrogen initiatives in both regions. This has originated in a partnership between Tuaropaki Trust and Obayashi Corp. to build a hydrogen producing facility using geothermal electricity near Taupo.
Significant progress is also being made in the $50 million joint venture between Hiringa Energy and Ballance Agri-Nutrients, which has plans for four wind turbines to be added to the Kaipuni production plant in New Plymouth. Yet, Hiringa is set to produce only enough hydrogen to power 3,000 cars or 300 trucks & buses. A small start, but a start nonetheless.
Labour Government Ambition
The governments’ ambitions to be a front-runner in the race to green renewable energy, could be hindered by its own aversion to hydrogen through CCS, unless the industry can attract enough capital. This is proving another barrier to increasing hydrogen uptake, unless we can get significant capital in the area, to offset the withdrawals from energy investment post exploration ban in NZ. The New Zealand Green Investment Finance (NZGIF) is a step in the right direction, but it lacks the firepower to develop the industry on its own.
CLOSING WORDS
“If the policy goals for zero-emission vehicles are to eliminate tailpipe emissions, then both [electric and hydrogen] vehicles score equally… But if the goal is to radically reduce the emissions of the greenhouse gas carbon dioxide associated with road vehicles, electric cars will always be better unless all hydrogen is produced renewably but most batteries are charged using non-renewable energy.”
-John Voelckler, Green Car Reports.
Hydrogen’s most limiting factor is decisively its inefficiency. The energy loss in the conversion process halts significant adoption of the technology because the economic inefficiency of using the fuel in the short-term deters potential users. Couple this with a lack of supporting infrastructure, hydrogen isn’t seeing rapid growth in the short-term.
That is not to say the long-term outlook is bleak. Hydrogen offers much more to consumers when we consider the products sustainability, with little performance reduction compared to fossil fuels, which makes long-term adoption of the technology highly likely. Though, the early dominance of EVs appears set to dominate the light to medium vehicle range, where battery weight and range is less of a factor.
Instead, hydrogen will service heavy public and cargo transport vehicles, where the vehicles benefit from both centralised fuelling, increased range and a higher power output without the sacrifice of cargo weight.
From a storage and export perspective, the technology will take longer to be adopted. Export hydrogen will be enforced more fiercely on a cost basis than transport fuel, thus requiring production to achieve significant economies of scale to compete on a cost basis with natural gas. As a result, this will see a select few countries pull ahead in hydrogen production. Said countries will likely contain one or more of the following attributes: (1) will have a significant share of renewable energy produced domestically, (2) be exporters of natural gas currently, (3) have a government-led hydrogen fuel initiative, (4) be centrally located to neighbouring export markets.
A transition to hydrogen fuel will be slow, but inevitable. Hydrogen offers the characteristics than can reasonably see us operating in a fossil-fuel-free world in the foreseeable future. Perhaps what the sector needs most, is simply active participants, and time.
