Favorable conditions for the hydrogen economy

July last year I wrote a blog about the hydrogen economy saying that this time around the conditions are more favorable:

“The new hydrogen economy can be a growth engine to help overcome the economic damage caused by Covid-19. In developing and deploying a clean hydrogen value chain, Europe will become a global front runner and retain its leadership in clean tech”. It illustrates what is different today:

  • Strong political support
  • A system view of the energy transition
  • Broad societal support for decoupling economic growth from GHG emissions
  • Cost reduction of renewable energy sources
  • Large industrial companies setting carbon neutrality targets
  • An innovation ecosystem driving down the cost of hydrogen production

 Meanwhile I participated as external commission member to a report on the hydrogen economy of The Council of the environment and infrastructure (RLi): Hydrogen the missing link. It concludes that hydrogen will ultimately make up 15-25% of the Dutch energy system, depending on the costs it could be more. It will be needed in different industries as a climate neutral feedstock for the production of base materials such as steel, plastics and fertilizers and is an integrative element that provides flexibility and security.

Some of the different application possibilities know no good alternative to decouple from GHG emissions, such as high temperature processes in industry and the powering of heavy transport like large ships. For other applications alternatives may be available, and ultimately cost and practicality will decide the winner. Hydrogen will not find its place in our energy system without any effort, at this moment supply and demand are still insufficient; a transition with a role for blue hydrogen (produced from fossil sources with carbon capture and storage)  may be unavoidable. Hydrogen attracts attention from many regions and countries, and the EU as well. The council thinks that an active policy would be good for the Netherlands by investing in production and infrastructure and to stimulate demand domestically. Some favorable conditions to build a hydrogen economy, like legacy infrastructure, are present in the Netherlands. The report describes the main obstacles to successfully develop the hydrogen economy, and gives key policy recommendations to overcome these.

Some argue hydrogen may be hyped and point out the disadvantages of the most common element in the universe; the most obvious being that it needs to be separated, stored cryogenically or by combining with an organic chemical, metal or metal hydride and it carries only a quarter of energy per unit volume of natural gas. It needs equipment with moving parts, can embrittle metals and can escape through the tiniest leaks and… it is explosive. A reality check on political ambition, the EU’s target of 40GW electrolysis capacity in 2030 funded by €550 billion of Capex over the next decade seems reasonable since the working assumption of the EU electrolysis capacity in 2050 equals the electrical load ever recorded for all of Europe (546GW). Goldman Sachs predicts an addressable market for green hydrogen in Europe worth €2.2 trillion in 2050, Bank of America extrapolates total hydrogen related infrastructure investments of $11 trillion through 2050. Large numbers and courageous ambitions.

Back on planet earth the cost of producing green hydrogen, underpinning the EU strategy, is driven by four main factors; cost of renewable electricity, a plant’s capacity factor, cost of the electrolyzers and the cost of capital. Probably the best locations in the world, the new renewable superpowers  will be able to combine high capacity factors with low green power prices. Bloomberg predicts an achievable green hydrogen price around $1/kg. Part of southern Europe possesses the combination of factors to get there, in competition with the renewable superpowers like Australia, Morocco, Gulf states, Chile, China and others. The EU proposes an additional 40GW capacity in North Africa and Ukraine and Germany is planning to import both clean electricity and green hydrogen. Import will be a crucial part of the hydrogen economy for the Netherlands and Rotterdam too, since offshore wind-driven green hydrogen may find it difficult to be cost competitive with production based on cheap solar and onshore wind and have a levelized cost disadvantage.

“Green swans” like pyrolysis of natural gas (with carbon black as by product), fusion technology or small modular nuclear reactors (running 24/7) or thermal hydrogen may come into the mix. Large amounts of money will be spend on the hydrogen supply side and green hydrogen will ultimately be competitive by 2050 but in Europe much of it will be imported and what is made in Europe may be made by foreign produced electrolyzers; not using European renewable power only.

Come what may, hydrogen is an important system element for a decarbonized economy, the ambitions are big and how supply chains will pan out is still unclear. There are some no regret options, like midstream infrastructure and setting up supply chains with renewable superpowers. Rotterdam may not benefit from its natural advantage of the past of depth of waterways (hydrogen carriers require less depth than large oil carriers) but can exploit many other hard and soft advantages to retain the position of important energy hub.  

For those who want to follow the hydrogen economy debate in more detail many resources are available. I am indebted to Michael Liebreich, the clear headed clean energy expert.