Is hydrogen a viable fuel for the long-term?

“Hydrogen is predicted to play a leading role in the energy transition with the “green oil of the 21st century” increasingly promoted by governments worldwide. As an alternative to fossil fuels, it could be a valuable tool for tackling climate change in future, helping many industries to reduce their CO2 emissions,” writes Allianz Risk Consulting in a risk report. DBS Group Research, on its part, sees hydrogen as a fuel source coming into the mainstream by 2030.

With countries around the world increasingly signing legally binding pledges for net-zero carbon emissions by 2030, clean hydrogen could be a very useful way of meeting this goal. Bank of America (BoA) expects “green hydrogen” to provide 24% of global energy needs by 2050. This would help cut carbon emissions by up to 30%. “The only viable clean molecule is hydrogen, which will play a major role in achieving these goals,” it says in a thematic investing report.

“If we want a world that is achieving net-zero emissions by mid century or so, my own view is [that] I can’t see another globally-traded commodity as more prospective than some form of green hydrogen,” Michael Brear, director of the Melbourne Energy Institute, University of Melbourne, tells The Edge Singapore in a video call.

And of course, nothing will make investors sit up and take notice than some very, very big numbers bandied. Goldman Sachs sees environmentally-friendly “green hydrogen” as a once-in-a-generation opportunity to tap into a market seen to hit EUR10 trillion ($16.3 trillion) globally by 2050 for utilities alone.

Fuel of the future

Hydrogen is an important part of sustainable energy systems because it is an “energy carrier” that can serve as a storage of energy for later use. While renewable energy sources like wind and solar energy can produce electricity for immediate use, this electricity is difficult to store for later use. It is also difficult for wind and solar-produced electricity to be transported over long distances via undersea transmission lines due to higher costs.

By using wind and solar electrification to produce hydrogen via electrolysis, this energy is transformed into something that can be stored and traded more easily. Hydrogen can be converted into its more stable liquid state or into ammonia and methanol for shipping abroad where it can be reconverted into a gaseous state for use. Brear says that this would facilitate international trade of hydrogen as an energy source, creating an overseas market for this commodity.

In addition, energy security is also improved since renewable energy can be stockpiled for times when weather conditions prevent wind and solar energy production. “The problem with wind and solar is that they are not always available,” remarks Adam Bacon, managing director of Ebony Energy, an Australian energy player that started with coal before transitioning to hydrogen and other fuel types. This ensures a consistent supply of energy all year round, with the possibility of stockpiles in case of emergencies.

And hydrogen is apparently a more efficient fuel source too. “Hydrogen is used to power hydrogen fuel cell vehicles. Because of its energy efficiency, a hydrogen fuel cell is two to three times more efficient than an internal combustion engine fuelled by gas. And a fuel cell electric vehicle’s refuelling time averages less than four minutes,” says Renee Cho, a staff blogger at the Earth Institute, writing for Columbia Climate School’s State of the Planet news site.

Despite the popular misconception that hydrogen is dangerous, experts say that these fears are largely overblown and it is time to put behind the grainy black and white imagery of the fiery 1937 Hindenburg airship disaster. “I don’t think hydrogen really poses any risk that can’t be managed or are any more substantial than the many commodities that we already move around the world and use,” says Brear of Melbourne Energy Institute, though he notes that the world must become more familiar with hydrogen safety as it goes mainstream.

Governments are looking to speed up the drive towards green hydrogen too. “In China, the number of refuelling stations increased threefold in 2019 to 61. Chinese authorities are exploring further possibilities for hydrogen-fuelled rail after a successful pilot programme in 2019,” remarks Xavier Chollet, senior investment manager, thematic equities, Pictet Asset Management. The EU, on the other hand, hopes to install 6 gigawatts of green hydrogen capacity at an estimated cost of EUR5–9 billion ($8.05–14.5 billion), scaling that up to 80 gigawatts by 2030.

Elsewhere in Asia, lucrative markets include South Korea and Japan, where demand is seen to reach 30 megatonnes in 2050. Low carbon hydrogen, says Prakash Sharma, head of markets and transitions at Wood Mackenzie, could become a US$50–90 billion ($66.7–120.2 billion) export industry for Australia in 2050 due to its abundance of land, wind and sunshine. “Australia’s hydrogen delivered costs can fall below US$2/kg in the longer term, making it competitive in all end-use cases in key markets of Northeast Asia,” he says.

While the high cost of clean hydrogen means that it is currently less viable for the developing world, Serene Esuoruoso, associate at the Carbon Trust, says that the World Bank is working with developing economies to develop national hydrogen strategies. The bank sees green hydrogen providing greater energy security and catalysing economic development. Siemens Energy is also using clean hydrogen technology to serve off-grid communities. Australasia managing director Michael Bielinski says that small-scale hydrogen production can be competitive compared to diesel, which can cost US$0.70 per litre.

The price of sustainability

Most of the world’s hydrogen — 95% to be exact — is still “grey hydrogen” made through fossil fuels. While no carbon dioxide is actually emitted when this hydrogen is used as fuel, producing grey hydrogen still releases carbon dioxide. But there has been a recent move towards producing so-called “blue” and even “green” hydrogen, both of which produce less carbon emissions during the production process.

The production of blue hydrogen is relatively similar to grey hydrogen — by splitting natural gas into hydrogen and carbon dioxide through the steam methane reforming (SMR) or autothermal reforming (ATR) processes. The difference is that the carbon emitted is captured and stored to reduce its environmental impact. This involves piping carbon dioxide captured underground at high pressure and storing them in liquid form under geological formations.

Green hydrogen is more sustainable as it typically uses electrolysis to extract hydrogen from water. Using an electrolyser device, an electric current is passed through water to split it into hydrogen and oxygen without carbon emissions. But alternative methods of generating green hydrogen have also been explored, with research now underway to use bacteria and algae to produce “photosynthetic hydrogen”.

Hydrogen producers disagree whether blue or green hydrogen is more commercially viable. On the one hand, Kerry Parker, CEO of Australia Future Energy (AFE), says that blue hydrogen will be required in the long term to better scale hydrogen production and reduce costs. AFE’s blue hydrogen facilities can produce around 91,000 tonnes of hydrogen per year at US$1.50/kg. Conversely, smaller green hydrogen manufacturers can produce around 4,000– 5,000 tonnes per annum for US$6–8/kg at most.

Stéphane Monier, Lombard Odier’s CIO, sees even grey hydrogen as better than traditional fuels. “Grey hydrogen also offers a future for fossil fuels that does not exist under other sustainable energy sources of electrification. Using natural gas in the production of hydrogen for passenger vehicles, for instance, already lowers carbon dioxide emissions by 30% compared with a diesel-fuelled car,” he says. Hydrogen can be mixed into conventional fuels to cut emissions too.

Greening the future

But Richard Poole, CEO of Verdant Earth Technologies, is more optimistic about green hydrogen as it grows more economical. Costs of hydrogen electrolysers, will likely be 35% cheaper come 2025–2030. Faustine Delasalle, director of business think tank Energy Transitions Commission, tells energy transition website Recharge that the price of green hydrogen will likely reach US$2/kg by 2030 and as low as US$1/kg in favourable countries like Australia.

But blue hydrogen is also likely to see a rapid drop in prices too, with Parker projecting that AFE would be able to produce blue hydrogen at US$1.20/kg over time. With costs being the main barrier to mainstream adoption, firms such as major industrials will prefer cheaper blue hydrogen despite higher carbon emissions. Costs could also be offset by selling emitted carbon dioxide too. AFE intends to sell 99% of its emissions — which have 96–98% purity — for “valuable use” such as food production and industrial manufacturing.

“The use of carbon dioxide to generate potential revenue streams could be a significant boost to the wider development and adoption of carbon capture,” notes a Fitch Solutions report. “If carbon dioxide can be used to generate revenue instead of storing it, which would lower the cost of carbon capture and storage (CCS), it would support wider development.”

But Ariel Liebman, director of the Monash Energy Institute, is sceptical about the scalability of CCS. “I’m quite dubious about whether it will ever work at scale to make any significant amount of blue hydrogen,” he says, noting that CCS technology itself is not cheap. And while Green hydrogen is a method of storing sustainable energy like wind and solar, blue hydrogen just makes the manufacture of grey and brown hydrogen less dirty.

“I would say that one thing there is general consensus over, is the fact that blue hydrogen will play an important role in the next decade to scaling up the hydrogen economy,” says Esuruoso. Scale, she says, is essential to decarbonising the power sector and providing energy for green hydrogen production. Yet, there is a risk of investors being stuck with stranded assets if blue hydrogen is rendered obsolete post-2030 should green hydrogen production costs fall sufficiently.

Shareholders are also increasingly prepared to pay a premium for sustainable energy. With major shareholders and funds desiring more ESG emphasis, management teams are under pressure to deliver on ESG targets. For some people, says Poole, having better green outcomes is more important than short-term capital costs, which is a greater cost driver for green hydrogen vis-a-vis operating costs.

The visible hand

Governments are key stakeholders in the hydrogen sector. Jeremy Hasnip, head of power and renewables, SMBC, says that governments are key to implementing safety regulations and coordinating R&D — sometimes across multiple countries. Hydrogen producers rely heavily on government subsidies to become financially viable until they become more cost-effective and attractive to private sector investment.

Richard Bridle, senior policy adviser at the International Institute for Sustainable Development, notes that subsidies can be framed as “offsetting” the harms of pollution caused by the heavily subsidised oil and gas sectors. “Subsidies to fossil fuels exacerbate the market failure of underpricing pollution,” he writes in an op-ed for the Global Subsidies Initiative. Diverting subsidies to hydrogen firms can level the playing field between renewable and non-renewable energy — as it has already done for solar and wind.

While governments are interested in hydrogen, Malavika Bambawale, managing director and head of sustainability solutions, Asia Pacific, at Engie Impact, a consultancy arm of Engie Group, notes that in the realm of public-private partnerships, it is key to balance government’s longer term policy considerations with a business’s need for more immediate returns. Bridle adds that it is also important to ensure that government subsidies do not lead to hydrogen firms becoming inefficient; firms may have a perverse incentive to over-rely on subsidies rather than improve their bottom lines.

“Subsidies are often expensive, fail to achieve their stated objectives, place a high burden on public budgets and distort markets, potentially leading to a less efficient distribution of resources,” says Bridle. Countries that have implemented energy subsidies have found them difficult to remove. Subsidies should be offered on the basis that “the business of business is business, and the business of government is government".

Photo: Bloomberg