Breathing life into the hydrogen economy

Insights and Analysis

Breathing life into the hydrogen economy

18 January 2022

The transition from fossil fuels to net zero greenhouse gas (GHG) emissions is a significant challenge for public and private sector entities in the energy sector. Success is likely to be found through a variety of solutions, rather than a single ‘silver bullet’. In the first of a series on the key technologies in the sector, we look at the role hydrogen can play in a net zero economy.

Hydrogen has the potential to enable “deep decarbonization” globally, according to the Hydrogen Council, an industry group of CEOs from 120 companies in more than 20 countries. The Council’s report, Hydrogen for Net-Zero¹, identifies more than 520 large-scale projects worldwide, equivalent to US$160 billion of direct investments. However, a fourfold increase is required by 2030 to meet net zero ambitions.

Hydrogen can provide the lowest-cost decarbonization solution for more than one-fifth of final energy demand by mid-century says the Council, and it expects global demand for low-carbon hydrogen to grow by 50 percent over the next decade. The extent of decarbonization depends on the production method, which exists on a spectrum from green hydrogen (water electrolysis using renewable electricity), through pink hydrogen (electrolysis using nuclear power), to blue or grey hydrogen (produced from fossil fuels with or without carbon capture, respectively). Hydrogen is particularly well suited to 'greening' industries where electrification cannot easily be implemented, such as the marine and aviation sectors.

While there is cause for optimism about hydrogen, there are also reasons to be cautious. At present, the cost of production of hydrogen remains a challenge.

The Energy Transitions Commission (ETC), a global coalition of companies in the energy sector and energy-consuming industries, transport and construction, says driving down clean hydrogen costs – in particular, green hydrogen costs – requires reaching around 50GW of production volume². However, demand for such a volume of clean hydrogen does not currently exist because of high costs. Hydrogen faces a ‘chicken-and-egg’ problem, which requires the simultaneous stimulus of hydrogen supply and demand.

Another challenge for hydrogen is the transport and distribution infrastructure - electricity transmission and distribution networks in developed countries reach into every household and business but a new transport infrastructure, or the retrofit of existing gas pipelines or the adaptation of existing transportation methods (eg LNG shipping), will have to be developed for hydrogen.

Public and private sector action must combine broad policy levers with focused interventions, which sometimes require coordination between multiple actors, says the ETC. Among the priorities are the setting of quantitative supply and demand targets to provide clarity to private sector suppliers, and carbon pricing to create broad incentives for decarbonization of hydrogen supply and of potential use cases.

Governments worldwide are acting to make hydrogen economically viable. Encouraging R&D and developing regulations to support a hydrogen economy.

The UK Government’s Hydrogen Strategy³ aims to provide 5GW of low carbon hydrogen production capacity by 2030. To achieve this the UK government has proposed to adapt its existing renewables Contract for Difference business model, with producers paid an indexed reference price for production to address both price risk and (through a gradually reducing reference price as volumes increase) volume risk.

The European Commission’s Hydrogen Strategy⁴ recognises that the challenges in deploying hydrogen require public and private sector collaboration. In Germany the government has launched the National Hydrogen Strategy (NWS), which creates a coherent framework for action for the future production, transport, use and further use of hydrogen, and thus for corresponding innovation and investment in the sector. The NWS defines the steps that are necessary to contribute to achieving the climate goals, to create new value chains for the German economy, and to further develop international energy policy cooperation.

In India, the Ministry of New and Renewable Energy is supporting a broad-based R&D program for hydrogen energy and fuel⁵.

In the U.S., the Fuel Cell and Hydrogen Energy Association, a coalition of major oil and gas, power, automotive, fuel cell and hydrogen companies has published a guide to creating a US Hydrogen Economy⁶. The U.S. Department of Energy (DOE) Office of Fossil Energy is focusing R&D on four areas⁷: carbon-neutral hydrogen production, large-scale hydrogen transport infrastructure, large-scale onsite and geological hydrogen storage, and hydrogen use for electricity generation, fuels and manufacturing. The DOE is also seeking to fund the development of several regional hydrogen hubs and to encourage the production of hydrogen at nuclear power plants.

In Australia, the government has gone so far as to commit to a stretch target of producing and exporting clean hydrogen on the basis of “H2 under 2”, namely a cost price of less than A$2.00 per kilogram of hydrogen. This stretch target aims to ensure that clean hydrogen will be cost-competitive with most of the widely used fossil fuels.

The replacement of fossil fuels with alternatives such as hydrogen, is one of the most promising ways to achieve a reduction of greenhouse gas emissions. The use of hydrogen will play a key role in this transition.

It will also create a new energy partnership which will require the importation of large amounts of hydrogen from production facilities (wind and solar etc.) in less developed parts of the world, such as Eurasia, Northern Africa and the Middle East.