Transition to a hydrogen-based energy system is environmentally and socially desirable, and technically practical. The key hurdle to overcome is making it affordable, says chief energy economist Guy Doyle.
With renewable energy now competing on price with fossil fuels, and costs still falling, it is realistic to envisage a near future in which wind and solar photovoltaic electricity generation has grown so much that supply regularly exceeds demand. The key challenge is to reduce the cost of converting power to hydrogen, for storage and transport.
For investors, the decision to back hydrogen comes down to the bottom line. When the hydrogen system has developed scale and is mature, it is expected to be relatively cheap and efficient, but it needs a push to get there. Like all new technologies, at present the infrastructure is expensive to develop and roll out – and new or repurposed assets are required across the whole hydrogen cycle.
Affordable alternative
‘Ambitious’ development of an extensive hydrogen system across the European Union over the next decade would cost just €8bn a year, the European Commission estimates in its Hydrogen Roadmap report. To give this scale, €8bn a year is equivalent to only a third of the renewable feed-in tariffs (FiT) paid in Germany. It is less than 10% of the costs associated with the energy transition taking place in Europe, as estimated by the International Energy Agency (IEA). And it is less than 5% of the total annual investments in energy and automotive assets in Europe.
Dutch gas company, Gasunie, and grid operator, TenneT, produced a joint 2050 zero-carbon energy plan in 2019, as required under Dutch law. It weighs and costs different options it could pursue, and points to wholesale adoption of hydrogen from surplus and low-cost renewables as the optimum means of achieving its goal.
Value varies by sector
The value of hydrogen energy in mobility is currently greater than in power and heating because it competes head-on with gasoline and diesel. At present, electric vehicles have the technological and commercial lead over hydrogen vehicles, but it is important to see the development of low and zero carbon transport as an opportunity for both.
Hydrogen for heating has a low value due to the dominance of natural gas, which is surprisingly efficient in domestic boilers. With tightening carbon legislation and the requirement to curb emissions, that will change.
Low carbon heat from hydrogen will become more valuable than low carbon power because there are few cost-competitive alternatives: electrifying heating systems is very expensive, while the UK’s National Grid recently pointed out that installed generating capacity would need to increase six-fold if peak winter heating demand were to be met by the power grid. Hydrogen is a practical replacement for natural gas, providing necessary modifications are made to networks and appliances over a transition period. The EC’s Hydrogen Roadmap says that even with current technology, blending hydrogen at modest concentrations (~20%) would not increase gas prices substantially.
Plentiful renewable electricity generation means that hydrogen is unlikely to compete on price as a primary power source, but it will come into its own for back-up power (for example when wind and solar experience several successive days of low output) and for providing inter-seasonal storage.
In the medium term, the ability to convert surplus power to hydrogen as part of a joined-up energy system offers commercial advantages to renewable energy producers. The frequency at which surplus renewable power is supplied either free or negatively priced has been rising. On 24 March 2019, negative system prices in the UK’s balancing mechanism occurred for 13 consecutive settlement periods, due to low electricity demand and high output from wind, combined cycle gas turbines and biomass power stations. The incidence of negative pricing is expected to increase well into the 2020s which means that there should be a lot of cheap, green power available for conversion to H2 that would otherwise go to waste. Ultimately, the increasing contribution of demand-side response, smart electric vehicle charging, increased electricity interconnection capacity and hydrogen electrolysers themselves will soak up any surplus of renewables. This will have a levelling effect on the price of electricity from different renewable and storage sources.