Hydrogen has become a buzzword that has stirred the energy industry. Although some fossil fuel-dependent countries feel threatened, others see opportunities. And while skeptics first dismissed it as a 'hype', policymakers and those in the private sector that believe in the technology’s future, have steadily increased the stakes. It is becoming clear that the application of hydrogen (whether green, blue, or another color) isn't a matter of ‘if’ but ‘when’. Many media outlets have been reporting on the potential of hydrogen and its value for the energy transition. Oilprice.com, for example, has on multiple occasions informed its readers on the paradigm-changing plans of several countries such as Germany, Japan, and Norway, to name some. The race is on and the stakes are high. However, one can ask the legitimate question of whether the massive investments make sense when the technology hasn’t proven its value yet.
For starters, the importance of hydrogen in certain sectors is unquestionable in hard to abate industries (e.g. chemicals, steel, and refineries) and transportation (e.g. heavy-duty, ships, and planes). Also, experts point out the complementary role hydrogen can play in the energy sector which will increasingly rely on intermittent sources such as solar and wind power. Peak shaving adds financial value to electricity that would otherwise be curtailed which instead can be used to produce hydrogen.
Furthermore, the energy carrier’s storage characteristics make it a potential commodity for intercontinental trade. Despite these advantages, there are limitations to its use.
The most important being energy losses in the production and conversion processes. Approximately 20-25 percent is lost during electrolysis and another 50 percent in the conversion process when using a fuel cell resulting in an overall process efficiency of 35 percent. As the energy transition advances, we may see more effective conversion processes and cost reductions. In the meantime, however, alternative energy storage technology and batteries could also become cheaper.
Nevertheless, energy companies, investors, and policymakers are making plans to kickstart the hydrogen economy in a big way. The list of projects is increasing by the day. The well-informed online media outlet Recharge published a list of the world's largest hydrogen projects in December 2020. At the time 13 projects were adding up to 50 GW until 2030. In six months the list has increased to 207 GW.
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It is a remarkable development considering that the current production capacity of green hydrogen (produced from sustainable sources) is just a fraction of what is planned around 2030. However, within the industry, the expectation is that cost will decrease due to four reasons.
First, mass production and economies of scale will reduce production costs significantly. Second, investing in sustainable technologies has become profitable meaning financial institutions have adjusted their scope. Third, governments in primarily the industrialized world are strongly in favor of decarbonization which strengthens the case for hydrogen. Lastly, the massive growth of wind and solar will provide cheap electricity that can be used in electrolyzers.
The ‘hydrogen fever’ is especially strong in Europe which, together with East Asia, is a region heavily dependent on the import of fossil fuels. The foreign sourcing of energy and high dependency caused a major shock in 1973 due to the oil crisis. It set the course for Western countries to develop the more expensive but politically secure resources of the North Sea. Locally produced hydrogen could offer the same benefit.
Import dependency is still an issue on the continent as domestic natural gas reserves are dwindling and the dependence on Russian imports remains. Hydrogen, therefore, is an opportunity to decrease political dependence while strengthening the local economy.
Nevertheless, it remains uncertain whether the stated goals will be reached. Creating a brand-new market comes with a unique set of challenges. First, multiple governments in primarily Europe but also North America and East Asia have set high targets that can only be reached through long-term commitments and financial support. Second, the chicken-or-the-egg dilemma needs to be resolved: scale up production and demand to create a market.
By Vanand Meliksetian for Oilprice.com
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