Hydrogen is fast gaining momentum as a key player in the green energy transition. But why is it key to decarbonisation and how can it be rolled out faster?
Decarbonisation is on a no-return pathway. So, the debate is not so much whether it happens but rather how quickly action is taken. There is little other choice but to explore new technologies and integrate them into our energy systems and our economies. The longer we wait, the higher the ultimate costs. And, importantly, those who pave the way can secure a lasting competitive advantage.
Hydrogen’s characteristics mean it can become a clean energy source for long-term energy storage, industrial heating, fertilisers, chemicals, steel making and transportation. Many expect it to become essential to achieving global emissions-reduction targets. It solves challenges where electrification or more mainstream low-carbon alternatives are not a viable or feasible option.
The case for clean hydrogen
The aim is to facilitate clean hydrogen, and therefore faster decarbonisation. Agnosticism remains about how this is achieved as long as a business case can be made, akin to how wind and solar projects began. The most immediate application is to replace grey hydrogen, which is made with natural gas, with clean hydrogen: either with blue hydrogen (grey hydrogen with carbon capture, storage and re-use to cut CO2 emissions), or with green hydrogen, which is produced with zero emissions from renewable electricity.
Most scenarios don't foresee green hydrogen playing a significant role in Europe before 2030. This is so for several reasons: Firstly, around 70% of hydrogen cost is directly related to electricity, so the price of electricity also determines the price of green hydrogen. Secondly, the challenge and cost of transporting hydrogen will remain high. And, finally, hydrogen needs to be produced with mostly renewable electricity, otherwise it would substantially increase CO2 production. Hydrogen produced with electricity from natural gas combustion produces 18.5 kg of CO2 per kg of H2, which compares with 8.5kg of CO2 per kg of H2 produced from natural gas directly – before any carbon capture.
The roll-out of hydrogen depends on policy support and subsidies. It doesn’t need to be economic to get started; there just need to be reliable frameworks in place. In that respect, governments must take swift action. One example of this is the EU’s Fit for 55 package of climate legislation – presented by the European Commission in mid-July 2021 – which boosts regulatory support for green hydrogen.(1) And construction has already begun in the Netherlands on the world’s first hydrogen network,(2) as the country ramps up its investment in green hydrogen projects.(3) Moreover, Russia’s war with Ukraine has resulted in an abrupt end to dependency on Russian fossil fuels, giving the switch to green hydrogen an added urgency. The REPowerEU plan provides legislative weight to this transition.
Driving the hydrogen roll-out
Wafaa Ermilate, Global Lead Hydrogen at ING, offers her perspective on hydrogen’s place in decarbonisation.
“We're able to incorporate the lessons learned from other industries that developed thanks to public support and regulatory frameworks, such as renewable energy. Costs need to decrease to ensure best value for money for taxpayers and overall affordability.
There is particular potential for green hydrogen in the sunny Mediterranean region and in countries such as Chile that have low-cost renewable electricity. Blue hydrogen may be more practical in other areas that have not yet integrated a sufficient percentage of renewables in their electricity mix. Internationally, small-scale hydrogen plants could be used to supply rural and off-grid areas.
Japanese conglomerate Marubeni, for example, has a government-supported green hydrogen pilot in South Australia that capitalises on the region’s low-cost renewable power. The project incorporates hydrogen production through electrolysis, to provide fuel for ancillary services for the grid, or to be converted to an appropriate form ready for transportation.”
“Private-sector investment will help to drive some of this work, with interest from private-sector financial institutions already growing in the $117.5 billion global hydrogen industry.(4) Project finance for green hydrogen currently makes most economic sense where it can replace grey hydrogen that is already in use in industrial processes, and where there is already a hydrogen off-taker in place and contracted future cashflows can be used to structure a bankable financing structure.
The fertiliser industry and refineries use grey hydrogen today, and they need to green their activities. We see them as the first adopters. A number of projects are already progressing across Europe. Global energy leader Iberdrola opened the largest green hydrogen plant for industrial use in Europe in 2022,(5) while Shell has announced plans for a 200 MW electrolyser in Rotterdam by 2025, which is expected to generate over 60,000 kg of renewable hydrogen every day.”(6)
“Cost is still a major hurdle. Hydrogen generation is an energy-intensive process that needs a lot of low-cost electricity – and preferably from renewable sources. As of July 2022, green hydrogen costs around $13.77 a kilo in Europe, against $6.50 a kilo for blue hydrogen.(7)
Compressed hydrogen has significantly more energy density than lithium batteries, but it takes more electricity to create it than it can store. And developing the technology for production, storage, and transportation will be capital-intensive – at a time when the world attempts to recover from a deep recession. I think, however, there is cause for optimism: with scaling up, there is an opportunity for the value chain to develop and mass production to become the norm. The recent examples of solar panels and wind turbine generators have set a successful precedent that can hopefully be replicated in the hydrogen space.
Prices for electrolysis are already trending downwards as technology improves and becomes more widespread, creating economies of scale in manufacturing.(8) The pandemic could have disrupted the ambition to achieve net-zero, but it has instead fuelled it – and unprecedented momentum is building. Decarbonisation is a shared goal, so global collaboration and a sustained pace on the policy side should hopefully see to it that all of these obstacles are tackled one after another.”