The Emerging Hydrogen Economy: Opportunities for Utilities and Infrastructure
Hydrogen is a big player in decarbonization, but extraction, transport, and storage challenge its economic viability.
By Thomas Gros
From Main Street to Wall Street to the boardrooms of the oil majors, the decarbonization of the global economy has become an accepted objective. The largest targets are power generation and transportation. Hydrogen is one potential solution to help decarbonize both, but its economic viability is challenged by its cost of extraction and difficulties in transport and storage. The opportunities for power and gas utilities and large infrastructural players like ports and pipeline systems are significant.
In July 1949, at the Belle Isle Power Station in Oklahoma City, the first gas turbine used to generate utility-scale power began operating, and the age of gas generation in America was begun. Today, natural gas-fired generation is the single largest source of US power, meeting 38% of US demand, according to the Energy Information Administration.
Unlike renewable sources, whose output is subject to the whims of mother nature, and nuclear power, which is designed to run at or near full output all the time, gas-fired plants can run 24/7 and ramp up or down to match demand or “load follow.” This is a particularly useful attribute for a grid that is increasingly subject to intermittency created by renewables.
So how best to take such a large, flexible fleet of power plants and decarbonize it? The approach many are pursuing is to blend or even replace the hydrocarbon fuel (natural gas) with hydrogen.
Hydrogen is the most abundant element in the universe, but on earth, it only exists naturally in combination with other elements, especially carbon (forming hydrocarbons) and oxygen (forming water). This gives rise to the first obstacle that hydrogen faces in becoming an economic source of energy: it takes incremental energy to extract it.
Historically, hydrogen has been produced by stripping it from natural gas, which is largely methane — a molecule with four hydrogen atoms and one carbon atom. Such “grey hydrogen” results in carbon venting into the atmosphere. “Blue hydrogen” is produced in a similar fashion, but the carbon is captured and sequestered. “Green hydrogen,” on the other hand, is produced by using power from renewable sources to electrolyze water, where the only by-product is oxygen. (Run the cycle backward — that is, input hydrogen and oxygen and output electricity and water — and you understand how a fuel cell generates electricity.)
Using electrolysis to produce hydrogen requires electricity that could have been used to satisfy immediate grid demand. It is appropriate, therefore, to view green hydrogen as a form of energy storage that must compete with other forms of storage, such as Li-ion batteries. This also means that with thoughtful strategic positioning, owners of renewable assets can create an even broader portfolio of valuable offtake options. For instance, a solar array near an industrial center could be used to supply power directly to the grid, to power a dedicated industrial site, to charge batteries, or to produce green hydrogen.
The second obstacle that hydrogen faces in becoming an economic source of energy is that its density (as a function of volume) is much less than that of natural gas; it takes about three liters of hydrogen gas to equal the energy content of one liter of natural gas. This makes hydrogen more difficult to transport and store. Nonetheless, many believe that the same pipeline and storage infrastructure could be adapted and applied. Researchers are also experimenting with liquification or combining hydrogen with metals to create a transportable solid. Combining hydrogen with nitrogen to form ammonia (NH3) is another option. However, all these approaches require additional energy inputs, which decrease the economic feasibility of the fuel.
Another approach is to create “Hydrogen Hubs” to minimize the distance between production and delivery. This concept is specifically funded in the $1+ trillion infrastructure bill that was recently enacted. Houston is a good example — the fourth largest US city hosts the largest petrochemical/refining complex on the planet, which is adjacent to the largest port on the US Gulf Coast. Such a hub also opens the door to providing hydrogen for fuel cells that power emission-free ships and semi tractor-trailers hauling shipping containers. Extend the model to the largest US ports (Los Angeles, Long Beach, New York/New Jersey, Savannah, Seattle-Tacoma) and the massive potential becomes clear.
These hubs and other natural clusters of industrial activity would also enable another method of decarbonization, carbon capture and sequestration, or CCS. While hydrogen’s focus is the elimination of carbon on the input side of the combustion equation, CCS is focused on its reduction on the output side. The optimal carbon reduction solution may be a function of the application. For instance, a gas turbine used to supply baseload power may be most efficiently decarbonized using a different method (or combination of methods) versus a turbine used just to meet peak loads.
So, what should utilities, major infrastructural players, and the companies that support them do to capture the opportunities of the emerging hydrogen economy?
A few suggestions:
- Make a plan. What is it your firm does best? If you operate critical infrastructure/systems (both physical and technical), what can you do to maximize their value in the hydrogen economy? Avoid myopia; don’t focus on a single view of the future. Define the options and paths that are most likely and identify in advance tripwires or milestones for action. Observe and apply the best practices of leading players in other hubs.
- Leverage the cloud. When Thomas Edison began operating the first central power plant on Pearl Street in 1882, he effectively built the first modern energy ecosystem. Frankly, little has changed until now. Hydrogen Hubs will likely drive the next generation of energy ecosystems — fully integrated with massive data transfers in real time. As a result, players who can interact securely and with minimum friction in the cloud will be competitively advantaged.
- Consider strategic partnerships. Key partnerships will likely be formed early. These may well include utilities, port operators, hydrogen producers, shipping companies, fuel cell manufacturers, truck manufacturers, etc. Identify the strongest players that complete your view of the ecosystem. Clean up all your internal systems and processes to be the most attractive partner in your defined space.
Gas-fired generation and the balance of the US power stack
- Nuclear plants provide nearly 20% of US power. The average age of the 93 US nuclear reactors at commercial power plants is nearly 40 years. The oldest plant is Nine Mile Point Unit One in New York, which began operating more than 50 years ago. Only two new plants are under construction. By their very nature, nuclear plants do not ramp up and down to match demand — instead, they typically run at or near full power non-stop for several quarters until they need to be shut down for refueling.
- Coal-fired plants accounted for nearly 22% of US electricity in 2021, an uptick from about 18% in 2020 due to an increase in natural gas prices (according to the EIA). Nonetheless, coal is on a long-term decline as public investors abandon the carbon-intensive business.
- Utility-scale renewable generation from solar photovoltaic (PV) and wind turbines now account for 10% of total US power generation–a number that is poised to rise materially over the next decades. As these sources are intermittent, they pose a significant challenge to grid stability.
- Hydropower supplies nearly 7% of US electricity demand.
- Battery Energy Storage Systems (BESS), especially those based on Lithium-ion batteries, are an obvious technical solution to balance the short-term intermittency of renewable generation. The lack of liquid market mechanisms (such as ancillary markets for voltage and frequency regulation) to reflect the value of balancing intermittency has impeded investment. The current price of Li-ion batteries is about $140 per kilowatt hour — which represents an astonishing price drop of nearly 98% over three decades, according to The Economist.
- Fuel cells, which act like hydrogen batteries that never need charging, also hold the promise of balancing the fluctuations of renewable generation while creating zero emissions. Their current cost makes them uncompetitive without subsidies, but this is a technology to watch for both stationary and mobile applications.
Explore this topic further with additional articles in the series:
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