Summary

Hydrogen is an energy vector or carrier meaning it must be produced from a primary energy source: fossil fuels, nuclear, solar, wind, biomass, hydro, geothermal and urban waste resources. Hydrogen is mainly found combined with other elements like oxygen in water or with carbon as with petroleum, natural gas or coal. There are several methods for producing or extracting hydrogen; steam reforming is the process of separating hydrogen from hydrocarbons and water. Another technique is electrolysis, which applies an electrical current to split water into hydrogen and oxygen molecules. Electricity that comes from renewable sources is called green hydrogen, when it comes from fossil fuels it is called grey hydrogen, and when emissions are captured instead of entering the atmosphere it is known as blue hydrogen.

Viability (4)

Green hydrogen is in the commercialisation stage where the need to decarbonise the economy meets the cheap cost of fossil fuel production. There is skepticism whether green hydrogen can ever reach a commercially viable price. Estimates suggest a price of $0.70 – $1.60 per kg in most parts of the world by 2050, making it competitive with natural gas. But of course, it’s important to bring the costs down lower, faster. Economies of scale, learning curves, and Government subsidies will drive down costs over time as will the continued declines of solar and wind costs. Some exciting R&D in getting hydrogen directly from the air through direct air electrolysers (DAE).

Drivers (5)

First, solar and wind installed capacity has grown over 14 and 3 times respectively, with costs dropping by 82%, 47% and 39% for PV, onshore wind and offshore wind, respectively. This made electricity, the main cost-component for green hydrogen, much cheaper, improving the business case for green hydrogen. Second, capacity and performance of electrolyser technologies have improved. Third, since the 2015 Paris climate agreement, “low carbon hydrogen” has become one of the most important technologies in the fight against climate change. Forth, energy independence is now top of the political agenda especially in Europe, it has announced its intention to produce and import 20 million tons of green hydrogen by 2030, enough to reduce its dependence on Russian natural gas imports by at least a third.

Novelty (4)

Obviously, green hydrogen competes with grey and blue hydrogen (using Carbon Capture, Utilisation & Storage) in terms of emissions reduction and cost. Hydrogen is one of best candidates to decarbonize difficult-to-abate sectors like steel, cement and heavy duty transport as well as green ammonia for fertiliser. Blue hydrogen is likely to compete with green hydrogen as it delivers cheaper cost with a a large decrease in emissions even if not totally sustainable in the same way as green hydrogen.

Diffusion (3)

The high cost of production is the main factor behind the low use of green hydrogen to date. Costs have come down from $6/kg in 2015 and estimated to get as low as $2/kg by 2025. The price of $2/kg is considered a potential tipping point that will make green hydrogen competitive against other fuel sources. There is already a $100+ billion dollar grey hydrogen market than if price competitive could switch quickly eliminating 1.6 percent of global emissions.

Impact (4) Medium certainty

Forecasts suggest a market size of around $70 billion by 2030. Replacing grey hydrogen gets the market to $150 billion and add on a decent chunk of the $200b+ Stationary Energy Storage from 2030, the economic impact can easily add up to $300 billion+, making green hydrogen one of the most important inputs to the economy in the 2030s. Forecasts suggest however that the amount of hydrogen in the energy mix will be only 0.5% in 2030 and 5% in 2050. However, to meet the targets of the Paris Agreement, hydrogen uptake would need to triple to meet 15% of energy demand by mid-century. Green hydrogen unlike Wind Power and Solar Photovoltaics has the potential to address primary energy use than cannot be electrified like aviation, maritime, and high-heat manufacturing. Green hydrogen is nevertheless a replacement technology albeit a more novel one, with some likely energy consumption increase, it doesn’t offer the same orders of magnitude increase in energy generation of a Nuclear Fusion or Deep Geothermal Energy.

Timing (2025-2030) High certainty

Green hydrogen is a tiny $1 billion market today, but it is growing at a blinding 55% per year though, which is one of the fastest growth rates of any technology area reaching around $70 billion by 2030. Forecasts suggest production costs reaching $2/kg by 2025 making it somewhat cost competitive, at that point the market will grow at a much faster rate. Even if blue hydrogen wins market share, the demand and market size is large enough to support investment.