Demystifying Green Hydrogen - A Swiss Army Knife solution to deep decarbonization

Amit Jain and?Sreyamsa Bairiganjan? (Views are personal)

There has been a lot of buzz about green hydrogen lately. In light of the net-zero commitments at COP 26, there is a worldwide push to fulfil hydrogen's potential as a clean energy solution. Is Green Hydrogen indeed a Swiss Army Knife-like solution to deep decarbonization, or are we creating a bubble that needs visible solutions before it can be scaled?

Several countries, including Japan, China, the EU, and Saudi Arabia, are actively pursuing green hydrogen production and distribution. Green Hydrogen projects worth more than $150 billion have been announced over the last year. The research group Rystad Energy estimates that by 2040 more than 70 gigawatts of such projects will be developed, which will require $250 billion worth of investment.

A majority of hydrogen is used today by industry, including petrochemicals, ammonia, methanol, and steel. Industrial heat heavy industry employs more than 70 MT of hydrogen annually on average, and a considerable portion of that hydrogen is generated from fossil fuels. Green Hydrogen could replace a large portion of that in the long term, making net-zero goals feasible in many countries.

Green Hydrogen, however, plays a critical role in decarbonizing 'Hard to abate sectors' in the race to net zero. As we analyze the Green Hydrogen space, it becomes clear that there is a substantial market at commercial capacity. Green Hydrogen will have an essential role in the industry as half of the airlines have declared net zero. At present, hydrogen is extensively used in ammonia, refining, and industry, with 98 percent of it coming from the Brown and Grey method.

However, all that growth will come with its fair share of challenges. As we look at the evolution of Green Hydrogen, some of the key challenges facing it are:

1.?????High cost: At present, the electrolyzer represents around 30% of the total Green Hydrogen production costs, and electricity represents about 55%. Even so, while in 2004, production costs were around 1000 US$, by 2022, they have decreased by a factor of ten to 100 US$. We can project that the cost per MWh will come down to around 25 USD by 2030 based on this cost reduction. At US$ 50, Green Hydrogen will reach oil parity, and at US$ 25, it will reach coal parity.

As a benchmark price, many countries are striving to have US$ 2 per kg of Green Hydrogen. At the present electrolyzing cost, one would need 3 cents of electricity at all times with high CUF, but if you were to use renewable energy (in the form of curtailments), the cost would be 0.5 cents per unit.

2.?????No mass manufacturing of components: The majority of electrolyzers are still made in shops instead of being mass-produced. As a result, Green Hydrogen production has been limited, and at present, there is no single plant that can produce 500 tons of Green Hydrogen per day. Green Hydrogen production will be expanded with the goal of creating a hub in Chile. CORFO, Chile's development agency, plans to develop 6 green hydrogen projects by 2025 with a cumulative electrolyzer capacity of 396MW. The Australian Government also wants to incorporate 10% hydrogen into the gas network by 2030. It also intends to target sectors that face challenges to cut emissions, such as a 26 GW project that has been in discussion for some time. There is a third project in Saudi Arabia (NEOM HELIOS, which converts hydrogen into ammonia) and the fourth project by Mitsubishi in Utah devoted to advanced clean energy. Besides these commitments, there are significant commitments worldwide, such as in India, where Reliance Industries has announced plans to invest $75 billion in renewables, electrolyzers, and green hydrogen.

3.?????Infrastructure limits: Hydrogen distribution has been a significant challenge since the Hindenburg disaster. Even though there have been significant advancements since then, Green Hydrogen still requires a large transmission capacity. There are use cases where 10 percent Green Hydrogen can be mixed in existing Natural Gas pipelines.

4.?????Production process: To generate green fuels in a sustainable energy economy, water splitting is an essential strategy. Comparing the substrate prices, water type, and green hydrogen as a product is the ultimate criterion. The price of desalinated water and green hydrogen is strongly dependent on energy costs (46–73% of total expenses for RO water desalination and 59–68% for green hydrogen production[1]) with a split of around 0.035 for desalinated water and 50 KW for electrolysis against the thermodynamic limit for 39. The amount of water used is relatively steep; however, the cost of desalination is not very high. As we approach scale, this will need to be more technologically streamlined in the near future.

Moving away from Grey Hydrogen: Next up Green Hydrogen vs Blue Hydrogen

According to the Hydrogen Council, 359 large-scale hydrogen projects are in the pipeline globally. The total investment into projects and the whole value chain amounts to an estimated $500 billion through 2030. In addition to this, around 134 companies from across the globe represent the entire hydrogen value chain and work towards developing hydrogen solutions to foster decarbonization.

·????????Most of today's hydrogen is Grey Hydrogen, derived from natural gas with a process that releases a significant amount of carbon dioxide (10kg CO2 per 1kg of hydrogen). Blue hydrogen requires additional carbon capture. Currently, capturing hydrogen through the Blue Hydrogen process costs around US$ 150 per ton. The cost is troublesome, given that there is a price increase from US$ 1 to US$ 3 after adding 150 USD for carbon capture.

·????????Blue and green hydrogen are seen as solid alternatives in the transition. Countries such as Canada are using all Blue Hydrogen. Globally, there is an effort to replace Grey Hydrogen, which accounts for 98%. Moving to Blue Hydrogen is a transitional solution that will eventually give way to Green Hydrogen. Green Hydrogen uses renewable energy for producing hydrogen. The cost of Green Hydrogen will reduce with the reduction in the cost of renewables.

Next Steps: Looking at the scalability of Green Hydrogen

·????????Focusing on structuring Power Purchase Agreements (PPAs) could be considered bankable for Hydrogen project, looking at the overall risk returns. This is similar to how the initial renewable energy incentives were structured, showcasing credible projects for investors.

·????????Given how far along some of the critical economies are on net-zero across the European Union, there is a discussion on leveraging financing structures and funds to invest in Green Hydrogen Projects. European private equity firms alongside institutional investors and pension funds are emerging as key investment partners of the European Investment Bank (EIB) to support funding for hydrogen projects. This is a crucial area that will be tracked globally.

·????????Airlines, as the key polluters and contributors to emissions, had been expected to look at fuel alternatives by 2035; however, given the much-needed push to the industries that came from the COP 26, we have the demand for cleaner fuel coming in today.

And finally, extensive structuring and policy support is required from governments globally required to achieve green hydrogen goals.