Is 2023 the year that green hydrogen delivers on its promise?
At the recent COP27, green hydrogen was at the top of the agenda with various governments announcing ambitious new multi-million dollar plans to build plants, collaborate and invest in developing a global market. As global leaders search for the right building blocks to lead us away from climate-impacting fossil fuel consumption to more sustainable alternatives, green hydrogen is being touted as one key solution. So, what exactly is green hydrogen? And how might it best fit into the global energy transition?
Broadpeak works with industry experts, impact-driven investors as well as academia on pressing global issues. With our articles and trilogies, we want to share some of the knowledge we gain in the process with our network. This is the first article in our Green Hydrogen Trilogy exploring this energy alternative, both its potential and challenges. All our articles and earlier trilogies article can be found here.
A critical enabler of the global energy transition?
Green hydrogen is hydrogen that’s produced from renewable energy, such as wind or solar power. An electric current is passed through water, separating out the hydrogen from the oxygen. In order for this process to be considered “green”, the electrical power must come from a renewable source.
Proponents of green hydrogen argue that it will allow for the greening of so-called “hard-to-abate” sectors such as construction and heavy-duty transportation that are responsible for approximately 30% of the world’s annual carbon emissions. According to estimates, green hydrogen could supply up to 25% of the world’s energy needs by 2050 and become a USD 10 trillion market by 2050. In sectors where decarbonisation is hard, or where electrification is next to impossible, green hydrogen could be a way forward in meeting global emission reduction targets. Green hydrogen has potential to be the fuel that helps meet the Net Zero target by 2050 in hard-to-abate sectors.
“Green hydrogen is about an industrial transformation which offers solutions for the hard-to-electrify sectors and can have a strong impact on major industries,” explains Almudena Nunez, Research Associate at Research Institute for Sustainability (formerly known as Institute for Advanced Sustainability Studies) in an interview with Broadpeak.
Another key area where green hydrogen could help meet climate goals is heavy-duty transportation such as aviation, trucking and shipping. Green hydrogen could potentially be used for decarbonizing heavy-duty vehicles like trucks that are harder to electrify. In addition, it could play a significant role in transitioning the aviation and shipping sectors. “Green hydrogen has a clear business case in long-distance freight, aviation, shipping and heavy-duty road transport like trucks,” said Jurg Grutter, Chief Executive Officer at Grütter Consulting AG.
Given the numerous applications of green hydrogen, many international organizations, governments and businesses across the world have acknowledged it as a key pillar of a net-zero economy. The United Nations has recognized green hydrogen as an innovative solution to achieving carbon neutrality and other climate targets. Around 45 countries are devising or have published national strategies, featuring green hydrogen as a critical enabler of the energy transition. According to a report by the Hydrogen Council, by 2030, USD 300 billion will be invested in projects to develop green hydrogen as a clean source of energy.
The Elephants in the Room
Hydrogen is still a carbon-intensive technology as less than 4% of global hydrogen production is derived from renewable energy (green hydrogen). Although hydrogen demand reached an estimated 87 million metric tons in 2020, over 95% of it was sourced from carbon-emitting fossil fuels (i.e. grey hydrogen). Green hydrogen, produced through the electrolysis process using renewable energy, is compatible with sustainable and climate-safe energy use. Therefore, we need to scale up green hydrogen while cutting down grey hydrogen production.
Moreover, the current method of green hydrogen production is not that energy efficient as it always comes with significant energy loss. About 20-40% of energy is lost when green hydrogen is produced using electrolyzers while additional energy is lost in the transportation of hydrogen. This means that 100 kWh of renewable energy usually produces only between 60-80 kWh of hydrogen energy. Clearly, more research is needed to develop innovative solutions that can make green hydrogen production methods more efficient and sustainable.
Furthermore, a clear use case is missing for green hydrogen and the price is not competitive for it to achieve scale. This use case for green hydrogen is still being debated while the current pricing mechanisms are not competitive with alternative fuels. Energy Transition Expert, Matthew Sebonia, Director and Founder of Global Climate Capital, told Broadpeak: “We cannot make absolute statements about the revolutionary ability of green hydrogen yet as our understanding of its best use case from an economic and service to customer pointof view is still lacking. For example, is it like the transition from whale oil to kerosene, wood to coal or coal to electricity (all three of which added massive end-user service value) or is it just a much more modest minor new product/service or at its worst case a flop like cellulosic ethanol and autonomous driving (thus far)?”
Incentives and Policy to Open Up a Way Forward
For a green hydrogen economy to become a reality, effective regulatory frameworks are needed to drive investment and ensure a just energy transition. Governments need to create policy frameworks that incentivize investments and promote a sustainable energy transition. According to Nunez, “First and foremost, energy transition needs to be just, meaning that all sustainability concerns must be considered holistically. Also, more stringent policy frameworks need to be developed that are understandable for the investors to promote a green hydrogen economy.”
Economic incentives are crucial for ramping up the green hydrogen market. A whole range of instruments like subsidies, carbon pricing and minimum quota for sustainable fuels is fundamental to scaling green hydrogen. “Climate projects with innovative technologies like green hydrogen are financed by KfW, on behalf of the German Federal Government, in developing and emerging countries with a mixture of grants and concessional loans with long maturities. This can mobilize private capital, which is necessary to achieve broad market penetration”, said Florian Ziegler, Principal Portfolio Manager at KfW Development Bank, in an interview with Broadpeak.
Lastly, we need to scale up research and development to understand the best use case for green hydrogen. More investments are needed on the research side to improve the efficiency and scalability of green hydrogen. Sebonia stated, “Green hydrogen is being touted as a one size fits all solution which is not right. In the climate energy transition, there are no silver bullets, only silver buckshot. Our understanding of the best use case for green hydrogen is still lacking. We need more clear deployment and market cases for customers to understand the true potential of green hydrogen for the energy transition.”