Rising demand
Hydrogen is expected to play a role in the energy system but concerted effort is needed to switch hydrogen production from grey to green and build scale.
Strong energy sector leadership and support from governments is needed to make green hydrogen a significant part of the future energy mix.
Price consistency is essential for green hydrogen – a zero carbon fuel – to begin displacing diesel and other carbon-intensive fuels from ‘hard to decarb’ sectors including freight transport, shipping, aviation and heavy industry. In the near term that will be difficult to achieve. Government action is urgently required to help it along.
Hydrogen is hugely versatile. It is essential in the fertiliser and refinery industries. It is seen as the fuel to replace hydrocarbons in parts of the transport sector that are hard to electrify. And it is expected to play a role in the energy system, mainly as a source of industrial process heat.
Currently, virtually all hydrogen is grey – made from natural gas or other hydrocarbons, with carbon dioxide as a by-product. Green hydrogen is produced by using renewable electricity to electrolyse water, splitting it into hydrogen and oxygen.
Global supply chain pressures originating from the pandemic, Western politicians’ and companies’ desire to improve supply chain diversity, and sanctions on Russian metals exports mean that, right now, the supply of technology required to produce green hydrogen is limited.
Meanwhile, the demand for green hydrogen is rising, thanks to carbon reduction commitments made and strengthened at the COP26 international climate summit in November 2021, and the importance of finding long-term solutions to the current energy crunch.
Concerted effort is needed to switch hydrogen production from grey to green and build scale.
Firing the starting gun
Initiating the push to green hydrogen requires:
Detailed policy and directives that identify the role of hydrogen within the whole energy system, and show industry and investors the path to take. Policy needs to be long-term and stable to give confidence that investments and commercial arrangements will have time to mature.
Models for configuring the hydrogen system, considering possible scenarios as well as probable uses. For example:
- how to produce, store and supply green hydrogen for use by energy-intensive industries, different transport modes, and domestic heating
- the speed at which technical unknowns and challenges are likely to be overcome – whether existing natural gas storage, transmission and distribution infrastructure is suited to handling hydrogen at high pressure, and if so, how to manage the transition, and how to undertake permitting for multiple offtake connections to distribution pipelines
- the speed and scale of investment
- user willingness and incentivisation to support the transition – industrial, commercial and domestic customers alike need to buy more expensive turbines, furnaces, vehicles and boilers in anticipation of the transition to hydrogen, or they will be locked into using hydrocarbons for the lifetime of that equipment
Developing models requires market incentives and funding for pilot projects, which need to be planned with the long-term future state of the hydrogen system in mind. This is essential to avoid the risk of stranded assets – hydrogen infrastructure built on an incorrect assumption about how the overall system will evolve.
Regulation. Although hydrogen has been in use for decades in industry, making it a mainstay of national energy systems requires new safety, environmental, social technical and economic regulation. This must encompass the carbon footprint of hydrogen infrastructure. All this requires focus on regulatory capacity and skills.
Financial support. As scale builds, costs will fall. Financial support in the form of subsidies or contracts for difference (CfD) are needed in the green hydrogen industry’s start-up phase. For energy projects with high upfront costs and long lifetimes, CfD protect developers and investors from volatile wholesale energy prices, and they protect consumers from excessive bills when energy prices are high.
Skills. New organisational capabilities as well as workforce skills are necessary to support a mass scale-up across both industrial and domestic supply chains.
Gas flow to cashflow
There are a growing number of green hydrogen mega projects in development worldwide, most aimed at supplying hydrogen to industry. As more go ahead, they will contribute to a virtuous cycle: Technical challenges will be resolved.
Supply will generate demand, stimulating innovation in demand-side applications as well as production. Supply chains will develop capability and capacity, leading to cost reductions. Investor and user confidence will grow.
Climate change makes the speed and scale of decarbonisation vitally important. Building a green hydrogen system big enough to play a significant part in the race to net-zero will take up to 30 years. That just aligns with the timeline set out by the Paris climate agreement and reinforced at COP26: net-zero by 2050.
The race is on. Governments need to map the course and set the pace.
First published by the Confederation of British Industry as part of the 'Achieving net-zero' conference, May 2022.
Nick Roberts is hydrogen account lead at Mott MacDonald