After three false dawns, the first following the OPEC crisis of 1973, the second led by carmakers in the 1990s, and the third driven by concerns about ‘Peak Oil’ before the financial crash, hydrogen is receiving unprecedented attention from governments and corporations alike. Whilst previous attention cycles have charted fluctuations in the price of oil, the current wave of interest has its roots in more stable, even sustainable, foundations. Hydrogen is now being touted as the key to decarbonising the economy.
This is a field of great uncertainty, dependent on coordinated action across a huge range of stakeholders in order to overcome barriers of cost and scale. It is clear, however, that hydrogen will be an essential part of reaching the net zero goal by 2050, as a solution for the harder to abate industries and segments. The recent progress in electrification of transport and heating can yield material decarbonisation results by 2030, but hydrogen will be integral in sectors such as aviation and shipping, and in offsetting the variability of an energy grid dominated by renewables.
What is it all about?
Hydrogen is already used across the world, primarily in industry for producing methanol and ammonia feedstock oil refining and steel production. Advocates say its use could be extended across the transport, energy storage, power and heating sectors. Most importantly, it can be produced without emitting carbon dioxide. Currently, less than 0.1% of hydrogen comes from water electrolysis using renewable sources. Natural gas is currently the source of ¾ of the global 70 million tonnes annual production, that translated into demand for 6% of global natural gas and 2% of global coal, producing annual carbon dioxide emissions equivalent to those of the UK and Indonesia combined.
A palette of hydrogen production methods are being mooted, each with differing de-carbonisation credentials and levels of economic viability. Whilst ‘brown’ hydrogen (made through the gasification of lignite or coal) currently makes up the majority of production alongside grey, two low carbon options, ‘blue’ and ‘green’ are receiving increasing attention. Blue hydrogen refers to the addition of CCS technologies to a grey or brown production process. Advocates say it offers a rapid solution to reducing emissions, whilst sceptics point to upstream methane emissions and the lock in of fossil fuel production plants. Our interest here at iClima, alongside a large proportion of the global energy sector, is, however, in green hydrogen – currently representing 0.1% of global production. Here, hydrogen is produced from water through electrolysis – an electric current splitting the oppositely charged hydrogen and oxygen atoms. Plummeting renewable energy prices have led forecasters to predict that producing green hydrogen from renewable electricity generation will become cost competitive with grey hydrogen by 2030.
Bursts of interest in the 20th and early 21st century centred around the potential of green hydrogen for personal mobility. Despite Toyota’s dogged commitment to its ‘Mirai’ line of hydrogen powered cars, most analysts now see electricity as an early victor in the passenger vehicle space. Hydrogen is seen instead as the key to deep decarbonisation, allowing sectors where electrification is impossible or prohibitively expensive to fall in line with the Paris Agreement. The first of these should be in industry, where existing infrastructure demand for hydrogen to produce feedstock, refine oil and manufacture steel makes it the ‘lowest hanging fruit’ for green hydrogen based emissions reductions. Shipping currently accounts for 5% of global emissions and, being difficult to electrify, is seen as prime territory for green hydrogen. In order to reach its target of a 50% emissions reduction by 2050, the aviation sector is also investigating hydrogen; the potential to use existing infrastructure makes hydrogen an enticing proposal, but problems with water vapour emission have dogged progress. Electrification is likely to dominate standard passenger railway journeys, but hydrogen could be eminently cost competitive for longer journeys and in hard to electrify parts of track. Whilst this versatile gas has myriad potential uses, the final key area identified here is in energy storage and security. Whilst batteries are more efficient in the short term, they self-discharge over longer timescales; what is more, the stable chemical bonds of hydrogen are more conducive to conversion and transportation than electric charge. Hydrogen, therefore, can provide much needed energy security in a system powered by variable renewable energy infrastructure. Green electrons would create the “green molecules” that would store energy to be used at fuel cells that can then generate electricity – back to green electrons.
Electrolysers and Fuel Cells
Precedents in other industries are relevant references to suggest if a virtuous cycle of increase in demand creating an increase in the supply volume, bringing costs down and creating more demand is likely to take place. In the 1960s the co-founder of Intel made an observation that became known as the Moore’s Law: the number of transistors in a one-inch integrated circuit would double around every year. A Sun Microsystems engineer gave his name to the Nielsen’s Law, that high speed internet connections for high end home users would increase 50% every year, doubling evert 21 months. More directly linked to green hydrogen is the Swanson’s Law. In 2012, the founder of SunPower Corporation, a solar panel manufacturer, made the observation that the cost of solar PV modules drops 20% for every doubling of cumulative sold volume.
How four key variables unfold will determine how competitive green hydrogen can become, and therefore the successful application of the sustainable gas in transportation, energy and industrial uses. The cost of renewable energy, the capital cost of electrolysers, the equipment cost and efficiency of fuel cells, and the overall cost of creating ammonia out of green hydrogen and transporting it across the planet. iClima is going deeper in this research.
A Shifting Policy Landscape
According to the World Energy Council (WEC 2020) and Carbon Brief, 53 countries currently have or are considering low-carbon hydrogen strategies. The number of countries in the International Hydrogen Council rose from 13 in 2017 to 81 in 2020. The WEC predicts that by 2025 countries with such strategies will account for 80% of global GDP.
These strategies have, crucially, been inducing concrete action. Between November 2019 and March 2020, analysts increased the list of planned global investments from 3.2 GW to 8.2 GW of electrolysers by 2030, After its unsuccessful attempt at leading global solar PV production in the early 2000s, the EU has shown early initiative in adopting a comprehensive hydrogen strategy, accounting for 57% of the forecast investments. Launching its three-phase plan in July 2020, the European Commission aims to have 40 GW of electrolysers installed within its borders by 2030 alongside another 40 in nearby countries that can supply the EU. With only 250 MW in place today, this could be a market-shifting pledge. The memory of the solar PV saga will loom large for EU leaders as China once again represents their biggest competitor. Whilst the EU leads on technology, China currently has the edge on cost and scale. It is worth briefly spotlighting other key movers.
Large supply side policies have grabbed headlines. Japan went early with a basic strategy in 2017. Resource poor, it now reportedly has designs to become the first full ‘hydrogen society’, solidifying this ideal through multiple investments: in late 2019 the country launched the world’s first liquid hydrogen carrier ship, in March 2020 it put the world’s largest green hydrogen electrolyser online, throughout 2020 the government negotiated with Australia, eventually securing the construction of the Asian Renewable Energy Hub in Western Australia, and the government is reported to be investigating the ripe production potential of Argentinian Patagonia. Within the EU, France, Germany and Spain have all announced ambitious green hydrogen strategies, with Germany in particular aiming to become the world leader. The government has recently signed a declaration of intent to develop a production facility in Morocco, fast becoming a centre of attention for green hydrogen generation potential, alongside Patagonia, inner Mongolia and Western Australia. Like China, Australia and Chile therefore both have production-based strategies – Australia aiming to reduce production costs below AU$2/kg of hydrogen, Chile less than $1.5/kg. The US has thus far lagged behind other countries, but new President Biden has pledged to make green hydrogen cost competitive with conventional hydrogen within a decade. Watch this space.
Currently, progress is stymied by a chicken and egg problem of supply and demand. Countries are increasingly aware that shifting supply towards a not-yet-competitive energy source requires incentives for established sectors and investors. In addition to its investments, the EU is considering various demand side policies, including Contracts for Difference, support schemes and quotas of renewable hydrogen or its derivatives. Japan will attempt to encourage demand through showcasing hydrogen technologies at the rescheduled 2021 Olympic and Paralympic games. It is fair to say, however, that the first wave of published hydrogen strategies focuses on investment and knowledge sharing to drive prices down, with limited outline of the specific demand-side policies which will inevitably be necessary.
Change Leading Corporations
Private interest has, unsurprisingly, risen alongside national strategies. Alongside interest from renewable energy companies, fossil fuel giants BP and Shell have invested heavily in projects . Here we spotlight the companies that we at iClima think can lead in mainstreaming green hydrogen:
Ballard Power Systems Inc The Canadian Hydrogen Fuel Cell manufacturer announced it will represent the sector at COP26. A deal with Scottish Enterprise, Transport Scotland and the Hydrogen Accelerator means a Ballard Fuel Cell module will power a zero-emissions passenger train demonstration around Glasgow during the conference. The company’s bid to conquer the European market has received two further boosts since December, in the form of a contract for 10 fuel cell modules to power the Dutch transport company Van Hool buses and a contract to supply Scandinavian telecommunications specialists Eltek Nordic with hydrogen powered 1.7 kW and 5 kW backup power systems.
Bloom Energy Corporation From late 2021, the Californian manufacturer of solid-oxide fuel cells will help the city of New York reach its Paris Agreement targets by providing the power supply for One World Trade Centre. The switch aims to save 1,140 metric tons of CO2 per year via use of a 1.2 MW new fuel cell installation, enough to supply one-third of One World Trade Centre’s electrical demand. A deal with Asian giant, SK, will see Bloom Energy later this year supplying their fuel cells and electrolysers to an industrial complex in South Korea, helping to establish their presence in Asia. The 20 MW and 8 MW projects based on Bloom Energy Servers are just the beginning, as South Korea released a ‘Hydrogen Economy Roadmap’ in 2019 calling for 14,000 MW of stationary fuel cells to be installed by 2040.
Ceres Power Holdings Engineering corporation Bosch owns an 18% stake in UK-based Ceres, a world leader in solid-oxide fuel cell. The German company announced plans over a month ago to scale up production of 200 MW of distributed power stations across Germany by 2024, hoping to bring Ceres £23 million in licensing fees. Beyond licensing out their fuel cell technology to Bosh, they also license to Weichai and Doosan. The company’s most recent news is a strategic partnership with Austrian powertrain developer, AVL, whose reach and reputation could offer significant opportunities for expansion.
FuelCell Energy Inc. Connecticut-based FuelCell Energy Inc has ridden the hydrogen wave with few festive announcements of its own. Back in October, the company won $8 million of funding from the US Department of Energy’s Office of Energy Efficiency and Renewable Energy. This will be put towards the development of its flagship SureSource electrolysis platform. In the wake of this governmental backing, the market clearly has high hopes for the platform which aims to provide efficient turnkey hydrogen power generation solutions at scale.
ITM Power The British company that manufactures electrolysers is a particular beneficiary of the hydrogen boom promise. In early January, it announced the sale of a 24 MW electrolyser to EPC partner Linde. In October 2019, Linde acquired a minority stake in ITM and is now partnering on clean energy projects across Europe. A week before the Linde deal, a consortium including ITM was granted €5 million by the European commission to investigate the viability of combining an offshore wind turbine and an electrolyser (fellow consortium participants are Iberdrola and Orsted). In Australia, ITM entered into a deal with Optimal that will see ITM membranes installed in projects across Australia. Back home in Sheffield, ITM’s Gigafactory received practical completion, with ability to manufacture 1,000 MW per annum; the world’s first gigawatt-scale electrolyser factory.
NEL ASA ITM’s Norwegian competitor has also had a fruitful period. It was chosen by utility giant Iberdrola to supply over 200 MW of electrolysers in Spain by 2023, with an initial 20 MW plant to start operations in 2021. A partnership with mobility provider Everfuel sees NEL ASA providing a 20MW electrolyser for use at the green H2 Frederica refinery facility in Denmark, a €7.25 million contract with delivery scheduled for late 2021. The two companies have also initiated a venture – Everfuel Norway Retail AS – to develop the hydrogen fuel market in Norway. Finally, NEL ASA will provide the electrolyser for the Netherland’s landmark ‘PosHYdon’ North Sea project, the first offshore green H2 pilot in the world.
Plug Power The New York-based outfit has retained its place as the market leader in this segment through two landmark deals in early January 2021. A collaboration with SK Group worth $1.5 billion seeks to develop solutions for each stage of the hydrogen energy production value chain. SK Group are South Korea’s second largest conglomerate, and this deal represents a key moment in the penetration of hydrogen fuels into the crucial Asian market. The second deal, a 50/50 joint venture with Renault, targets the light commercial vehicle sector, a market in which Plug Power’s CEO believes light, rapid fuelling hydrogen vehicles could have a competitive edge.
PowerCell Sweden Once part of the Volvo group, the fuel cell manufacturer joined the European Clean Hydrogen Alliance at the end of 2020. Bosch’s interest in this field is once again demonstrated by an order of PowerCell S3 Fuel Cell stacks for application in cars, buses and trucks. Looking ahead to later in 2021, a deal with Statkraft will see the companies exploring the possibilities for stationary power and also for mobile power solutions, peak shaving and smart grid possibilities connected to wind and solar sources.
Key Drivers and Tipping Points
The base determinant of green hydrogen’s success will be the price of renewable energy. Driving the current surge of interest in hydrogen, falling prices are predicted to make green hydrogen cost competitive with grey hydrogen by 2030 in areas conducive to renewable generation. If this now widespread prediction holds, a key issue will be transporting hydrogen to demand centres.
The IEA notes that this entails much uncertainty given its geopolitical implications, the CAPEX intensive nature of hydrogen carrying ships, pipelines and storage and the lack of suitable existing infrastructure. Hydrogen is highly flammable, voluminous and can weaken steel transportation pipes. Integrating hydrogen into any of the sectors mentioned therefore entails a complex chain of relationships; for example hydrogen can be converted into ammonia – a more stable and energy dense compound – for transport. There is ready-made infrastructure for ammonia transport, but with conversion at either end of transportation, the economics are still unclear.
Green hydrogen production will be a geographically heterogenous endowment. Transportation costs therefore represent a large proportion of the current uncertainty around green hydrogen’s future (https://www.iea.org/reports/the-future-of-hydrogen)
Transparent government strategies are needed to have any chance of overcoming these uncertainties. The moves by Germany and Japan to secure supply and transportation from Morocco and Australia respectively should provide confidence to investors and must be replicated to overcome this inertia. In its hydrogen strategy, the EU talks about a ‘tipping point’ wherein this can occur. Another crucial component in the viability of green hydrogen is the cost of the electrolyser – the focus of the EU Strategy’s first phase. The scale of the Chinese market has driven their production costs down to 80% below European and North American made electrolysers. This scale, enabling standardised component and plant design and an affordable supply of materials will be crucial to the success of hydrogen, making adoption a potentially self-reinforcing process. Forecasters predict that vigorous competition between the EU and China could also be an important feature of driving prices down. Falling energy and electrolyser costs are, however, only part of the story.
Fundamentally, the potential of green hydrogen stumbles in many instances not because of flawed technology, but because of a simple case of chicken and egg. Countries, however, are hitting this issue head on, focusing on simultaneous production, transport and market creation. Most importantly, a broad and diverse range of actors are now poised to act on the green hydrogen promise. If countries continue to follow ambitious and concretely achievable strategies, expect to see a rapid, non-linear proliferation of projects in the next decade. The promise of green hydrogen is this time built on sustainable foundations.