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September
08
2020

The One Big Problem With Green Hydrogen
Irina Slav

From a rarely mentioned, modest member of the renewable energy family to a headline-hogging clickbait, hydrogen has quickly turned from a prop to a star. There is a good reason for it: the most abundant chemical element in the universe can be harnessed to produce and store energy without fear of supply shortage. And it can even be produced entirely from renewable sources, which makes it near-perfect.

Near, because green hydrogen comes at a cost. Several U.S. utilities have revealed big plans for green hydrogen, according to a Wall Street Journal report. NextEra Energy and Dominion Energy are among these, and they plan to invest in the production of hydrogen from solar and wind electricity even though it is one of the more expensive ways to produce hydrogen, to be in turn used to produce electricity.

“The costs are going to go one direction, and that’s down,” a senior vice president of Dominion Energy told the Wall Street Journal. “It’s just a question of how far down they’re going to go.”

Indeed, this is the most important question that will make or break green hydrogen’s future. Wood Mackenzie analysts recently wrote in a report that they expected the production costs of green hydrogen to fall by as much as 64 percent by 2040 and in some places, even sooner.

“On average, green hydrogen production costs will equal fossil fuel-based hydrogen by 2040. In some countries, such as Germany, that arrives by 2030. Given the scale up we’ve seen so far, the 2020s is likely to be the decade of hydrogen,” the author of the report, senior research analyst Ben Gallagher wrote, adding, “Rising fossil fuel prices will boost green competitiveness, further strengthening the case for this technology in the coming years.” 

Europe is already betting big on green hydrogen, and by big, we mean plans to build at least 40 GW of electrolysis capacity by 2030, with 6 GW of these to be up and running by 2024. Electrolysis is the process used to produce hydrogen by breaking down water into its constituent oxygen and hydrogen atoms. While it uses renewable sources of energy and cheap feedstock, this process remains much more expensive than the hydrogen production process that involves natural gas.

Europe is bent on going green and hydrogen-powered, however. It wants to get the early competitive edge on a hydrogen market that analysts, according to Reuters, expect to swell to $1.2 trillion by 2050. And it looks willing to pay whatever it takes to gain this edge or achieve its 2050 net-zero ambitions despite the cost.

To make hydrogen a mainstream fuel, you need production and distribution, as well as storage, infrastructure. The distribution part is relatively easy in Europe: hydrogen can be pumped along pipelines previously used to transport gas, though they would not be enough. Storage is a bit trickier as hydrogen is highly combustible. Production is also tricky, given the cost of zero-emissions electrolysis. Globally, things get even trickier.

Reuters quotes a cost estimate by Barclays for the production equipment needed to produce green and blue (using carbon capture technology) hydrogen globally, and this comes in at $500 billion over the next three decades. But, the bank notes, necessary investment in storage and distribution infrastructure could swell the bill to as much as $1 trillion. According to Wood Mac’s Gallagher, as quoted by Reuters, the hydrogen infrastructure challenge could become the biggest one among all decarbonization technologies from the last decade or so.

To date, green hydrogen costs between three and six times more to produce than grey or blue hydrogen, according to a senior analyst from Guidehouse quoted by the Wall Street Journal. That is a significant deterrent to the adoption of a technology, but the net-zero drive is changing all this. According to Guidehouse’s Dan Hahn, the cost of green hydrogen production will start going down pretty soon thanks to the investments being made in its advancement.

Meanwhile, analysts seem to agree that fossil fuel costs will rise over the next decades, evening the playing field with hydrogen. Wood Mackenzie’s Gallagher, for example, expects the cost of grey hydrogen, the sort produced using coal and gas, to rise by as much as 82 percent by 2040, because of an expected increase in natural gas prices. The cost of blue hydrogen, the sort produced using natural gas combined with carbon capture and storage, is seen rising by 59 percent by 2040, again because of rising natural gas prices.

It seems the competitiveness of green hydrogen relies heavily on natural gas prices. If prices do not rise as analysts expect them to, this competitiveness may be compromised, no matter how many billions of energy companies invest in the technology. On the other hand, with the cost of renewable electricity also falling, the cost of producing hydrogen using solar and wind could continue to decline steadily, especially when factoring in excess energy produced by solar and wind farms.

NextEra, for example, plans to use excess power produced by solar farms to make hydrogen that it will then use at a power plant that currently runs on gas. The hydrogen will replace part of that gas. This incremental approach to adopting hydrogen might be the best way to approach it, keeping costs as low as possible and cutting emissions at the same time.

By Irina Slav for Oilprice.com 

 

 

 

 

Irina is a writer for the U.S.-based Divergente LLC consulting firm with over a decade of experience writing on the oil and gas industry.

 

 

 

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