#TouchingHydrogenFuture - #Japan

#TouchingHydrogenFuture – tour across the globe in Jules’ Verne style

Short series of stories on global Hydrogen future, written by a group of Hydrogen passionados and energy market realists, making concepts accessible to wider audience, allowing both entertainment and education including readers from all continents for whom affordable and clean energy is key.

Imagining the future is delivering it.

How hydrogen will change our lives. Next stop: Japan, 2030s

Author: Dan Shulman. Editors: Erik Rakhou and Rosa Puentes Fernández

Christmas reflections on the hydrogen economy of Japan of 2030s.

It was December 2040, and I was sitting by my small Christmas tree here in Tokyo and reflecting on the progress of the hydrogen economy in Japan. It was warm and cozy in my beautiful but modestly sized lodgings (see figure below for an impression).

Figure: lodgings impression, author’s photo.

My mind wandered:

Hydrogen in 2039 Japan?

From the beginning of the 2020s, soon after the Japanese government committed to carbon neutrality by 2050, it established hydrogen and ammonia as pillars of the new strategy to reach its environmental goals. The whole hydrogen supply chain was, however, close to nonexistent and, despite numerous announcements, progress on this front has been slow. It is now 2039 and Japan is still slowly rolling out its hydrogen plan. By now, hydrogen is beginning to be used in co-firing in thermal plants, as well as in industrial processes such as the production of steel and fertilizers.

Most of the hydrogen is imported from Australia and the Middle East, with local production only in remote, sparsely populated areas. From the beginning, the Ministry of Economy, Trade and Industry (METI) had planned to import most of the required hydrogen. In order to develop the supply chain, the environmental value of the hydrogen and ammonia was not the priority at first and grey hydrogen found its way into Japan. Paris Agreement implementation and policy makers continued to influence the landscape, and you’ve seen for yourselves how things played out.

I still remember how Erik asked me to write something on the future of hydrogen, and I hesitated as I was slightly skeptical of how fast the hydrogen economy would really take root, and knowing how complex it is to design the correct incentives for industries to act, but I agreed nonetheless. My mind wandered again.

Back to 2021 and the original hydrogen strategy from METI

METI had planned for hydrogen use to increase to 3 million tonnes per year by 2030, up 50% from 2 million tonnes at the time of the hydrogen strategy publication in 2021. This was followed by a 20 million tonne target for 2050.

The 2030 volume target was met, supported by generous subsidy programs such as the $20bn Green Innovation Fund (GIF), which financed pilot hydrogen production and utilization projects. By end-2021, the GIF had already allocated $3.4bn to two major projects that will help create a large-scale hydrogen supply chain and develop hydrogen production through water electrolysis.

While volume was achieved, METI’s hydrogen price targets proved more difficult. From 100 yen per normal cubic meter in 2021, METI expected the hydrogen price to fall by more than two thirds, to 30￥/Nm3 in 2030 and further to 20￥/Nm3 or less in 2050 - below the natural gas cost forecast. It has been particularly difficult to achieve these numbers for CIF 100% “green” hydrogen.

METI’s plan also placed targets on the demand side of the supply chain with the development of 1000 hydrogen stations for mobility in 2030; 800,000 fuel cell vehicles in use by 2030 and 2-3 million by 2040;?1200 fuel cell buses by 2030; 10,000 fuel cell forklifts by 2030 and 5.3 million residential fuel cell units by the same year.

I was reflecting that, yes, incentives (grants and subsidies) do work to make the world move forward with plans, but still, markets have minds of their own. My mind wandered again – guided helpfully by my experience in business consulting - following the various sectors where the hydrogen economy was now ‘touchable’. My mind landed first on ‘power generation’.

Hydrogen and ammonia in the power generation industry

Japan had traditionally been heavily dependent on coal and gas for baseload power, and 40% of its power still came from these fuels in 2030. Rather than replacing this capacity with non-dispatchable renewable energy, Japan focused on reducing carbon emissions by mixing hydrogen and ammonia with gas and coal in its thermal plants. Companies like Mitsubishi Heavy Industries, Kawasaki Heavy Industries and IHI started developing co-firing turbines in the early 2020s.

For example, in January 2021, MHI jointly conducted an experiment with The National Institute of Advanced Industrial Science and Technology (AIST) and achieved stable combustion of 1005 hydrogen with a single-cylinder engine.

Momentum slowly built up, and in 2025 the first 30% hydrogen co-firing turbine was commercialized, and in 2030 large-scale 100% hydrogen-fired turbines were available. This technology was partly the result of the experience of Japanese industrial firms' involvement in foreign projects. MHI had been involved in a project in the Netherlands to convert LNG-fired Nuon Magnum Power Plant (440MW) to a 100% hydrogen firing plant. In 2025, MHI had provided a turbine for a 840MW gas plant co-firing 30% hydrogen in the USA.

Nevertheless, the adoption of hydrogen and ammonia in the power generation industry was slow. By 2030, only 1% of the power mix came from these fuels. In the following years this number only slowly increased, with opposition to hydrogen from both politicians and the business world, which have questioned the environmental value of the technology. Green hydrogen is still not available in Japan at the price and scale that would be necessary to fully convert Japan’s fossil fuel generation fleet and keep costs below 17￥/kWh (the original 2030 target from METI’s plan). Many have argued that given the limited time and resources that Japan has to meet its environmental goals, other options might prove more efficient to decarbonize the energy mix whilst staying in the 3E+S framework [1] defined by METI.

The reflection of candles played in the windows; power generation was providing some light, and clean hydrogen was powering some of the turbines doing. Who could have imagined it? See below for an impression of lighted city:

Figure: lighted city impression, author’s photo.

My mind moved on to ‘mobility’.

Hydrogen and ammonia in the mobility industry

Despite ambitious goals, individual fuel cell vehicles did not develop as expected. In 2021 there were 3,800 hydrogen cars in circulation in Japan and 162 fuel stations. The targets of 200,000 FCVs by FY 2025 and 800,000 FCVs by FY 2030 were not met. The price premium to electric cars did not erode, and more importantly the lack of a supporting infrastructure did not favor hydrogen cars. The incentives to push the adoption of electric vehicles, with their increasing role in the balancing of the grid and the emergence of new business models for vehicle-to-home and vehicle-to-grid after 2024, disrupted the adoption of hydrogen cars. The development of hydrogen stations was slow from the beginning. By 2025 approximately 320 stations were developed and this number increased to 900 stations by 2030. The original plan was to stop government subsidies by the second half of the 2020s but the lack of demand made this option unrealistic. The lack of scale did not allow for the cost reductions expected and the construction and operating costs failed to reach the JPY 200 million and 15 million JPY/year expected by 2025.

However, while unsuccessful in the passenger vehicle market, hydrogen proved more successful in haulage and other long range, heavy vehicles, particularly in low density markets. In 2021 Tokyoites could already board one of the 104 hydrogen buses available in Japan. But today, it is places like Hokkaido that have really taken to the technology. The original 2030 target of 1200 buses set by METI was met and the market has kept growing since. In these remote, low population density areas with few charging stations, the superior range of the hydrogen buses and trucks is a real advantage.

The cost of hydrogen buses decreased rapidly from about 105 million JPY each in 2021 to 52.5 million JPY by 2030, when government subsidies were stopped. Since then the market has grown steadily without subsidies.

A nice song in the background briefly caught my attention – ?Christmas radio was reaching its peak. I enjoy taking bus sometimes (and it was a hydrogen powered bus now). I didn’t mind that my car was electric – heavy duty transport always looked to be a better option for hydrogen than personal vehicles. My mind wandered next to how we make things.

Hydrogen and ammonia in the steel and chemical industries

In December 2021 METI released a technology roadmap for the chemical industry to reach carbon neutrality by 2050. On the whole, this has proved accurate, with the necessary R&D and pilot projects being financed by the Green Investment Fund in the 2020s as predicted, supported by study groups from major industry players such as Idemitsu, Iwatani, ENEOS, Nippon Steel, Mitsubishi Chemical, Air Liquide and others.

In the early 2030s, steam methane reforming was partially replaced with imported greener hydrogen. A few years later ammonia was used as fuel to power naphtha cracking furnaces.

Green hydrogen is also the basis for green methanol and other new low carbon industrial applications. In steel making, hydrogen reduction is still in the early stage of application at Nippon Steel. Nippon steel has spent several billion dollars in the past two decades to develop and apply this new technology and is now building the first equipment. It expects to spend several more tens of billions of dollars on Capex. The technology is an important element of its decarbonization vision for 2050, published in 2021. Green imported ammonia is also now readily used in the production of fertilizers in Japan.

Christmas started banging on the door in the form of noise from my next-door neighbors’ my home - lots of materials used, or consumed (e.g. in my fridge), were now in fact made with clean hydrogen behind them. What a hidden but interesting change. It was time to remember how the supply of all this ‘greatness’ came about. My mind wandered once more.?

Hydrogen and ammonia supply

Looking back, it was clear from the initial green growth strategy and revised hydrogen strategy published by METI in 2021, that the Japanese government was relying on imports to cover the vast majority of its hydrogen needs.

Already in the 2020s several consortiums were developing pieces of the supply chain to bring hydrogen to Japan. Sumitomo, Chiyoda, Toyota and other members established a hydrogen import hub and distribution network in the Chubu area. ENEOS and Kawasaki city did the same for the Kawasaki waterfront area. Kawasaki Heavy Industry developed a liquid hydrogen carrier ship and joined forces with Iwatani Corporation, Shell Japan, and J-Power to pursue a liquid hydrogen supply chain.

Major Japanese players such as Iwatani and Mitsubishi Heavy Industries have been investing in hydrogen (brown and green) production projects in Australia since the 2020s and are now importing the fuel to Japan. The Kobe hydrogen terminal is one of the major hubs.

The Middle East is the other major partner in the Japanese hydrogen supply chain. By 2021, METI had signed a memorandum of cooperation with Adnoc to encourage cooperation in the field of fuel ammonia (blue and green). The same year Eneos signed an MoU with Saudi Aramco to consider development of a CO2-free hydrogen and ammonia supply chain. These partnerships have been key to building today’s imports of hydrogen from these countries.

Japan has also managed to develop some domestic hydrogen/ammonia production capacity. Companies like Asahi Kasei started to commercialize hydrogen production equipment back in 2025. The company scaled up operations and managed to drive production costs down to 330 yen/kg by 2030.

There has also been progress in producing hydrogen in remote locations where local renewable power is available and transport costs make bringing in hydrogen expensive. In the 2020s the Green Innovation Fund financed R&D projects that supported local distributed generation capacity. It all started with pilot projects such as the one conducted by ENEOS and IHI who, in 2021, began development of hydrogen production in Fukuoka Prefecture. The project made use of IHI's energy management system to control multiple renewable energy power sources simultaneously. It was conducted under a public-private partnership with the Ministry of Environment’s supervision, and the involvement of the Fukuoka prefectural government and of several cities. Around the same time, Hokkaido EPCo and Nippon Steel Engineering began a similar project in Ishikari City, Hokkaido, with the aim of producing hydrogen from offshore wind (under NEDO subsidy). The task was daunting as initially green hydrogen production costs were more than 3x higher than imported grey hydrogen. Today, after a cost reduction of 50%+ of both Capex and Opex and the optimization of energy management systems to maximize the use of intermittent renewable power, the production of domestic hydrogen is competitive with imported alternatives.

As I emerged from my reverie, I tried to pull the thoughts together before departing for my neighbors’ Christmas party. Today hydrogen is well integrated in the heavy industries and in remote areas with low population density. To reach this point in Japan the CIF price fell by almost 80% and strong political ties and joint investment with exporting countries was required, beginning in the early 2020s. Hydrogen has found its most victorious niche with buses and trucks in remote, low population density areas, not with personal cars. EVs have proven more attractive in most areas, due to cost advantages and a lack of hydrogen fueling stations, as well as the integration and monetization of electric cars in the power system.

I had to admit to myself that the CO2 value (CO2e/kg H2) of the imported hydrogen is still an issue, and each source has a unique level - which affects the degree of decarbonization at end-use. For example, co-firing of hydrogen at thermal power plants has made limited progress because of cost disadvantages and a lack of an effective carbon price until the mid-2030s.

Japanese green hydrogen production is cleaner and costs continue to fall, but until recently, it had remained at a relatively small scale due to the limited availability of renewable energy. The latter did worry me as a citizen of the world and keen Paris Agreement fan. But since 2035, as the offshore wind sector has begun to grow in earnest, increasing volumes of surplus green wind power have provided a boost to Japan’s green hydrogen sector, driving down power and hydrogen production costs at scale.

As the Christmas celebrations raucously continued, I felt hopeful for the hydrogen economy in its next decade – admittedly, racing much more slowly to its grand finale than many had anticipated in the 2020s.

Disclaimer:

The opinions expressed are purely those of the authors and in no case can they be considered as an official position of the organizations.

The information presented here is based on available public information from announced projects. In any case can be considered a guarantee of what may or may not happen in the future. The author(s) reserve(s) the right to include additional fictional projects or features for the solely purpose of this story.

This is just the beginning of a potential book that we are planning to write. The book would consist of several chapters, each of them highlighting how life would be in different countries if the current announced H2 projects/H2 valleys/IPCEIs had developed. The purpose of the book is mainly educational.

As this is a proof-of-concept, we appreciate your honest and constructive feedback.

References:

[1] METI (Ministry of Economy, Trade and Industry) uses the 3E + S framework to guide its development of the power system in Japan. This framework is intended to ensure that a balance between safety, energy security, economic efficiency and environment is maintained when changes are made to the power system. For more information on METI and Hydrogen strategy, consult inter alia: Tapping Hydrogen’s Energy Potential | METI Ministry of Economy, Trade and Industry

For any other references you require please don't hesitate to reach to Dan Shulman (or Erik Rakhou).