Four conditions for the deployment of green hydrogen
Green hydrogen has been identified as a key technology to meet decarbonization ambitions and, in particular, support the transition toward a greener future in hard-to-decarbonize sectors. Despite the large ambitions, the path to green hydrogen is not straightforward – experts from Arthur D. Little four conditions that are needed for the successful deployment of hydrogen.
The hydrogen economy is touted to become a $700 billion economy by 2050, with green hydrogen expected to take a dominant share. A diverse set of players is currently repositioning and exploring opportunities in the green hydrogen paradigm, and many investments are underway with a plethora of projects announced each month across the globe.
As it stands, 40+ countries have enacted ambitious policies and plans to boost hydrogen use, which has driven interest similar to the early days of solar energy.
Four conditions are necessary for successful deployment of hydrogen across four value chain elements:
Steering policies and regulations
Supranational, national, and regional policies supported by adequate regulatory and incentive instruments are at the cornerstone of the green hydrogen economy and are imperative in the short to medium term to establish conditions for success and to fast-track deployment given the cross-sectorial nature of hydrogen applications and the need for economic-financial support initially.
In fact, while most supranational and national hydrogen policies initiated by the EU, Japan, Germany, Australia, and other countries are clearly targeting the decarbonization of their economies, there are at least two additional reasons why policymakers might advocate green hydrogen.
First, it offers an opportunity for economic development and energy supply diversification; the Kingdom of Saudi Arabia (KSA) as well as UAE are examples of diversification away from hydrocarbon dependency. And second, is to maintain or achieve technological leadership with an associated positive GDP along with employment impact. One such example is Germany, which might be willing to reaffirm its technological supremacy in the electrolyzer manufacturing business.
A key reinforcing element for the green hydrogen economy is foreign policy, and particularly, the formation of synergic, bilateral, or multilateral agreements, such as those observed recently. In 2021, for example, Germany and KSA announced a strategic alliance on green hydrogen development to collaborate on the generation, processing, use, and transportation of clean hydrogen for the benefit of both countries.
This partnership will help Germany maintain its technology leadership as well as attain policy targets. As for Saudi Arabia, the alliance will help bolster it as a global producer of green hydrogen. Another example is the Memorandum of Understanding signed last year between Singapore and Australia to share knowledge and collaborate on new low-emissions technology.
On top of traditional subsidies, demand-side measures, and green procurement policies, several regulatory/incentive instruments are available to enable the green hydrogen economy. These include the carbon tax and emissions trading system (ETS); research, development, and innovation (RDI) funding; green hydrogen certification; and contract for differences (CFDs).
Carbon taxes and ETS remain key levers for the deployment of green hydrogen, as these bridge the economic gap with gray hydrogen. As recently reported by S&P Global, the EU ETS carbon price surged to an all-time high of €90.75/mt ($102.34/mt) on 8 December 2021 and EU allowance prices are expected to average €65.80/mt in 2022, compared with an average of just under €53/mt in 2021.
The EU also plans to bolster its current ETS mechanism with a carbon border adjustment mechanism to eliminate unfair competition outside Europe, creating more advantage for green hydrogen.
The development of a green hydrogen certification scheme provides a guarantee of origin for hydrogen and its derivatives. Such certification is important as off-takers seek to develop zero-carbon products due to increased environmental awareness and regulatory pressures. Certification programs are being discussed at a policy level in Europe and Australia and are expected to roll out soon.
Besides RFI funding and hydrogen certification schemes, yet another tool that can accelerate the deployment of hydrogen supply facilities are CFDs, which were employed previously with wind farms. In Germany, this instrument is being discussed in conjunction with the concept of a market maker (MM), an entity that tenders long-term supply contracts on one side and demand contracts on the other.
CFDs will then be used to compensate for the difference between the two to help fast-track the creation of a global green hydrogen market.
Competitiveness and reliability of supply
While policy and regulation remain key considerations for successful deployment of green hydrogen, investing in green hydrogen supply is contingent on three critical factors:
1) Cost-competitive production of green hydrogen
2) Willingness of investors to embrace the embryonic green hydrogen opportunity
3) The ability to deliver hydrogen to customers in a reliable manner.
One location that meets the requirements necessary for transition to green hydrogen is Saudi Arabia, where inexpensive renewable energy is abundant from both solar and wind. It is here that one of the world’s largest GW-scale green hydrogen plants, when complete, is expected to have a combined electricity cost of $2-$3 cents/kWh, with the total production cost of green hydrogen close to $2 per kg.
The plant is being built in a collaborative project between Air Products, NEOM, and ACWA Power. This allows them to aggregate their capabilities and equity as well as leverage economies of scale.
There are other examples of collective work, including the Smart Delta Resources consortium in the southwest Netherlands and the province of East-Flanders, Belgium; the cooperation agreement between Total and ENGIE to develop France’s largest renewable hydrogen production site; and the recent alliance between Mubadala, ADNOC, and ADQ to grow the green hydrogen economy in Abu Dhabi.
So, in many cases, a joint venture may be a good way forward as it limits risks and increases willingness to invest.
Another important condition for successful deployment of hydrogen is the reliability of supply (i.e., the ability to provide continuous, uninterrupted supply to customers). Many industries, like chemicals, petrochemicals, and steel, have a constant demand for a continuous and uninterrupted supply of hydrogen. To ensure a continuous supply, it may be necessary to have a configuration of both electrolyzers and existing steam methane reformers, producing both green and blue hydrogen, or to develop and utilize storage facilities.
Availability of adequate transport infrastructure
Irrespective of hydrogen’s source, it needs to be transported and stored to balance supply and demand. In Europe, the caverns left after salt extraction would be an ideal location as here large quantities of hydrogen could be stored at low cost.
Ships can carry hydrogen that has been liquified through compression and then cooled down to as low as -253°C, but this is a relatively wasteful process as there is an immediate 45% loss in volume with a further reduction of 0.2%-2%a day during transit.
So, as a more effective alternative, hydrogen can be carried as ammonia (NH3) or in liquid organic hydrogen carriers (LOHC), both of which have high energy density and are easier to transport. LOHC, for example, have similar properties to oil products and can be shipped as a liquid without the need for refrigeration. However, both might still require conversion before transport and may also require reconversion at the destination, unless, as with ammonia, it is intended to be used as an end product.
Compared to shipping, pipeline transport may prove to be a more economical mode of transport. The downside is that the infrastructure takes time to build and may need scale, which means that shipping remains the convenient and necessary short-term solution even though it is more expensive.
The below figure illustrates the relative cost of transporting hydrogen in all forms from Saudi Arabia to Germany. The cost of transport in each case is under €3/Kg, with NH3 having a slight cost advantage over LOHC, and both having a significant advantage over liquid hydrogen because of their higher density. However, this benefit is largely offset by the higher conversion and reconversion costs involved.
Pipeline transport can be achieved either by converting the existing natural gas network or by building new infrastructure. Even when new hydrogen pipelines are needed, it is more than 10 times cheaper to build them than to install an electrical infrastructure of the same capacity, which is why pipelines tend to be central to any integrated national hydrogen plan.
Though it will be necessary in many instances to construct some parts of a pipeline network, existing natural gas networks often can be converted and repurposed, as is the case in Europe. The German Association of National Gas Transmission System Operators (FNB Gas), for example, is aiming to create a 1,293 km hydrogen transmission network in Germany by 2030.
Similarly, Gasunie plans to build a 10-15 GW “hydrogen backbone” in the Netherlands by 2026. In both countries, it is technically feasible to convert about 80%-90% of the network to carry hydrogen by replacing compressors and other components.
Even without any conversion, it is still possible to carry as much as 10% hydrogen through an existing natural gas network without any adjustments.
Based on a net-zero scenario, IEA forecasts suggest that hydrogen will comprise up to 35% of total demand by 2050, with long-term demand for hydrogen coming primarily from transport, power, heat, and especially industry, where the main use is as a carbon-neutral feedstock for syngas, bioethanol, steel production, and the like.
Using green hydrogen will be one of the few ways that many industries can comply with the Paris Agreement. Collectively, the iron and steel segment, for instance, could cut 2.4 Gt3 from the CO2 emissions it emits worldwide using green hydrogen as the sole or auxiliary reducing agent during production. Some, like German steelmaker ThyssenKrupp, are already planning to use green hydrogen and as part of its emission reduction plans, RWE will supply ThyssenKrupp with green hydrogen made with offshore wind power.
In transport, green hydrogen is a real option where electrification is problematic, as in segments like shipping, heavy trucking, and aviation. And in the power and heat sector, hydrogen can be used for power generation and seasonal storage.
For heating buildings, green hydrogen is also an alternative. Micro combined heat and power (mCHP), could replace natural gas boilers in private households, for instance.
However, if they are to ensure the long-term viability of large production facilities, green hydrogen producers will need significant and ongoing contracts from large off-takers in chemicals, petrochemicals, and steel.
This article was authored by Arthur D. Little experts Carlo Stella (Dubai), Eddy Ghanem (Beirut), Martijn Eikelenboom (Amsterdam), Cedric Schemien (Frankfurt), and Martin Dix (Berlin).