Hydrogen – A Green Future is not Blue
Energy Blog, 27 September 2019
Niek Schumacher reflects on the hype around hydrogen and how its business case could be made green.
As you might remember from chemistry lessons at school, hydrogen is both the lightest element in the periodic table and constitutes 75% of the mass of the universe. And despite being such an innocuous little molecule, it is about to play a third major role in the energy revolution. The recent hype around hydrogen as the Holy Grail of the energy transition is mainly thanks to its incredible versatility; enabling it to replace fossil fuels in mobility, heating and electricity generation and serve as a low-carbon feedstock for industrial processes. Though hydrogen is currently not playing the role some might foresee it having in the future, it is important to note that the petrochemical and fertilizer industry are already consuming enormous volumes of the stuff. Unfortunately for Mother Nature, this hydrogen is produced using natural gas, a process which causes significant carbon emissions. On a global scale this so-called grey hydrogen is responsible for almost 2% of worldwide emissions, more than the carbon emissions in the UK.
The Hydrogen Case
Confusingly for a colourless gas, the convention is to use colours for hydrogen produced by different processes. Firstly, as mentioned, the existing grey hydrogen. Secondly, we have blue hydrogen, which would also be produced from natural gas, but with theoretically limited emissions as production would be combined with the much hyped technology of carbon capture and storage (CCS). Finally: green hydrogen, which is produced from the electrolysis of water using renewable electricity such that the net carbon emission is definitely close to zero.
So why are we not immediately switching from fossil fuels to blue or green hydrogen? This is because using hydrogen as an energy source also has numerous disadvantages. First of all, for applications like mobility and heating, the required changes to the existing infrastructure will take a long time, cost a lot of money, and it’s not clear to investors how big the actual market will be. Secondly, applications of hydrogen tend to have quite low efficiency compared to competing technologies; the many energy conversions required along the hydrogen supply chain make for a rather low overall system efficiency. For example, hydrogen boilers for residential heating and hydrogen fuel cell cars are considerably less energy efficient than their electricity based competitors such as heat pumps and electric vehicles.
Both these disadvantages are compounded when looking at blue hydrogen because CCS is still largely technically unproven and definitely an expensive proposition. Huge CCS capacity would be required for a wide implementation of blue hydrogen and that simply does not exist (and it is hard to see how it can). Ultimately, the blue hydrogen case seems circular and self-defeating; using natural gas to produce hydrogen, which in turn is replacing fossil fuels like natural gas – and at a higher cost. We thus do not believe in the blue hydrogen case. That said, there is a big lobbying effort by some industries, most notably the oil and gas giants, to push blue hydrogen as a way to enable a smooth transition to green hydrogen in the longer term. To us this sounds a bit like vowing to only drink beer at the weekends before you give up alcohol for good.
The Green Promise
So if blue hydrogen is not the answer, what is the case for its green cousin? The obvious big opportunity seems to be electrolysers producing green hydrogen by absorbing excess electricity when the supply of (renewable) electricity exceeds demand. As a result, green hydrogen could be produced against very low or even negative electricity prices. Surely, this would make a great business case for the production of green hydrogen?
However, there is a slight fly in the ointment. In order to make a green hydrogen production facility compete with its grey cousin at current natural gas market prices, it needs to run at pretty much full capacity for a whole year at a relatively low electricity price. With the current relatively small (although nicely growing ) amount of renewable energy in the global system at the moment, there is simply not enough excess electricity to go around, and hence green hydrogen plants do not make commercial sense yet.
A Hydrogenius Business Case…
So, despite being a promising energy carrier in a low carbon energy system, green hydrogen is still facing significant technical and commercial challenges. In order to overcome such challenges the hydrogen sector is in need of low-complexity projects without expensive new infrastructure requirements to allow for a viable business case. The obvious place to start is the petrochemical and fertilizer industry where grey hydrogen is already used extensively. These industries require large volumes of hydrogen, allowing for economies of scale, while their facilities often have enough space to allow for on-site production reducing the new infrastructural investments.
In the highly cost-focused heavy industry, the requirement is thus for a cheap power source with a high capacity factor – typically baseload production at or below spot market prices. This could come from hydro power plants (and many players are eyeing countries like Canada and Norway for hydrogen projects). However, other renewables like onshore and solar typically have low capacity factors which handicap their usefulness even if they are price competitive. The exception is offshore wind, which has both substantially high capacity factors and low cost and is thus being increasingly linked to hydrogen.
Being heavily rooted in the offshore wind sector, we are observing the developments in the hydrogen sector ourselves with strong interest. Although they are not (yet) matching the high capacity factor and low cost of hydro power, offshore wind farms have made impressive progress over the last decade to such an extent that current long term tariffs allocated to offshore wind farms under auctions are at levels below the expected long term levels of spot prices. With hydrogen production creating a stable demand source for power and potentially attracted by fixed long term prices, we see a great business opportunity in the synergy between green hydrogen and the offshore wind sector, itself (as a capital-intensive generator) looking for a long-term, stable offtaker for its production.
… and how to get there
Seeing all this, we see a great future for green hydrogen – but also want to make sure it is not seen as the be-all-and-end-all for the energy transition, as its disadvantages (weak energy conversion efficiency and infrastructure requirements) could be overwhelming outside of a few core uses. The next step is for governments and companies to be realistic and decisive when it comes to the further development of green hydrogen projects. For governments, that means: supporting the business case of green hydrogen projects by ensuring a level playing field, for instance by granting them the same benefits in terms of reductions or exemption on grid fees as other energy intensive industries. Moreover, and probably more importantly, governments should ensure a stable and representative carbon price so green and grey hydrogen can compete on an equal level, economically and environmentally.
The most important role, though, will be played by the industry, as development, construction and operation of green hydrogen projects require a wide range of capabilities, from renewable energy to gas infrastructure, and from electricity markets to heavy industries, and investments will only take place if participants feel they can master all of these.
We at Green Giraffe are always working on decarbonizing our economy and we see there are opportunities in green hydrogen to significantly reduce carbon emissions combined with having a sound business case. We are looking forward to continue the dialogue, join forces and accelerate the global development of green hydrogen, because we believe a green future is green, not blue!