TODAY’S HYDROGEN business is, in global terms, reasonably small, very dirty and completely vital. Some 90m tonnes of the stuff are produced each year, providing revenues of over $150bn—approaching those of ExxonMobil, an oil and gas company. This is done almost entirely by burning fossil fuels with air and steam—a process which uses up 6% of the world’s natural gas and 2% of its coal and emits more than 800m tonnes of carbon dioxide, putting the industry’s emissions on the same level as those of Germany.
The vital nature of this comes from one of the subsequent uses of the gas. As well as being used to process oil in refineries and to produce methanol for use in plastics, hydrogen is also, crucially, used for the production of almost all the world’s industrial ammonia. Ammonia is the main ingredient in the artificial fertilisers which account for a significant part of the world’s crop yields. Without it, agricultural productivity would plummet and hundreds of millions would face starvation.
Tomorrow’s hydrogen business, according to green-policy planners around the world, will be vital in a different way: as a means of decarbonising the parts of the economy that other industrial transformations cannot reach, and thus allowing countries to achieve their stated goal of stabilising the climate. But for that vital goal to be met everything else about the industry has to change. It can no longer stay small. Morgan Stanley, an investment bank, reckons that, if governments take their green commitments seriously, today’s market could increase more than five-fold to over 500m tonnes by 2050 as these new applications grow (see chart 1). And it has to become clean, cutting its carbon-dioxide emissions to zero.
Clean hydrogen is quite plausible. The current method of making it from fossil fuels could be combined with technology which separates out the carbon dioxide given off and stores it away underground, an option known as carbon capture and storage (CCS). Alternatively, fossil fuels could be taken out of the process altogether. Electricity generated from renewables or some other clean source could be used to tear water molecules apart, thus liberating their constituent hydrogen and oxygen, a process called electrolysis.
One way to make these technologies cheap quickly would be with a carbon price high enough to make the current industry adopt them. That looks highly unlikely. In its absence governments are trying to spur demand for clean-hydrogen capacity through industrial policy and subsidy, rather as they spurred the growth of renewables. As the European Union’s hydrogen strategy puts it, “From 2030 onwards and towards 2050, renewable hydrogen technologies should reach maturity and be deployed at large scale to reach all hard-to-decarbonise sectors.” Forcing the industry to the level of maturity which will allow that deployment is set to soak up $100bn-150bn in public money around the world in the decade to 2030. Some $11bn of that will be spent this year, according to BloombergNEF, a data company.
The problem with all this is that hydrogen is not like renewable electricity, the green transformation it seeks to build on. Green electricity helps the climate simply by replacing dirty electricity. For the most part hydrogen helps the climate only when used for new purposes and in new kit. For companies to build or purchase that kit, they need to be sure there will be plentiful and affordable clean hydrogen. For companies to produce clean hydrogen in bulk, they need to know that there will be users to sell it to. That is the rationale for public money being pumped in to prime both supply and demand.
The Hydrogen Council, an industry consortium, reckons some 350 big projects are under way globally to develop clean-hydrogen production, hydrogen-distribution facilities and industrial plants which will use hydrogen for processes which now use fossil fuels (see map). They will have electricity demands in the tens and hundreds of gigawatts, on a par with those of large countries, and are slated to receive $500bn of public and private investment between now and 2030. That expenditure could end up embarrassing governments and enraging shareholders if today’s high expectations do not pan out.
Hydrogen had its enthusiasts long before climate change became an issue. Its appeal was threefold. It is very energy-dense: burning a kilogram of it provides 2.6 times more energy than burning a kilogram of natural gas. When burned in air it produces none of the sulphates or carbon monoxide through which fossil fuels damage air quality both outdoors and in, though it does produce some oxides of nitrogen; when used in a fuel cell, a device that uses the reaction between hydrogen and oxygen to produce electricity without combustion, it produces nothing but water. And because it can be made by electrolysis, or from coal, it was held to free its consumers from the tyranny of oil producers—an advantage which, after the oil shocks of the 1970s, accounted for the first serious spurt of interest in hydrogen on the part of governments, as opposed to maverick visionaries.
The fact that the enthusiasm dates back so far, though, has become an energy industry joke: “Hydrogen is the fuel of the future—and it always will be.” The problem is that there is no natural source of hydrogen; on Earth, most of it is bound up with other molecules like those of fossil fuels, or biomass, or water. The laws of thermodynamics dictate that making hydrogen from one of these precursors will always require putting more energy in than you will get out when you use the hydrogen. That is why hydrogen is today used for processes where chemically adding hydrogen atoms to things is of the essence, such as the manufacture of ammonia for fertilisers and explosives. Only in very niche applications, such as the highest-performance rocket motors, is it burned as a fuel.
Two paths you can go by
The reason that the old joke now looks set to lose its punchline is that even with lots of clean electricity—a huge challenge in itself, but also a sine qua non for deep decarbonisation—there are parts of the economy which currently look likely to resist electrification. Windmills and Teslas alone are not enough to save the world.
Energy pundits have taken to describing the emissions-free hydrogen industry they imagine meeting these very-hard-to-electrify needs with the help of a conceptual pantone chart. Today’s high-emissions hydrogen is known as grey, if made with natural gas, or black, if made with coal. The same technologies with added CCS are known as blue. The product of electrolysers running off renewable energy is deemed green; that of electrolysers which use nuclear power is pink. Hydrogen produced by pyrolysis—simply heating methane until the hydrogen departs, leaving solid carbon behind—is turquoise.
At present, grey hydrogen costs about $1 a kilogram—the cost depends largely on the natural-gas price. Add colour, and you add a premium. No one is yet making blue hydrogen at scale, but when they start doing so the costs will probably be double those for the grey. Green hydrogen, meanwhile, costs over $5/kg in the West. In China, which typically uses alkaline electrolysers, cheaper but less capable than those preferred in the West, prices can be lower.
In June America’s Department of Energy unveiled a “Hydrogen Shot” initiative that aims to slash the cost of green, pink, turquoise or blue hydrogen by roughly four-fifths to $1/kg by 2030—a decline similar to those seen in the solar panel and battery businesses. It will benefit from a number of following winds.
The first is the continuing decline in the cost of renewable electricity. This matters because electricity typically makes up most of the cost of electrolysed hydrogen. The second is that electrolysers are getting better and cheaper.
Bloom Energy, an American company which first came to prominence in the abortive hydrogen boom of the 2000s, recently unveiled a solid-oxide electrolyser which it reckons could be 15-45% more efficient than rival products, in part because it operates at a very high temperature. Technology based on proton-exchange membranes (PEMs) is also getting better. The promise of big hydrogen projects has also made it plausible to design and build much larger electrolysers than have been seen before, which brings down the cost per kilogram.
Prices will fall as a result of growing experience, just as they have in the solar sector. Today the world has about three gigawatts (GW) of electrolyser capacity—a gigawatt being the power output of a nuclear plant or a very large solar farm. McKinsey, a consultancy, expects that to grow to over 100GW of capacity by 2030. Bernd Heid, one of the company’s experts in the field, reckons this scaling up could in itself cut the cost per gigawatt of capacity by 65-75%. In short, a grown-up and dynamic industry is emerging out of a business which until recently bordered on the artisanal.
ITM Power, a British maker of electrolyser equipment, has seen its tender pipeline more than double in the past year. The firm raised £172m ($226m at the time) last year to expand capacity to 2.5GW per year. Graham Cooley, its boss, says his firm “now has a blueprint for a gigawatt factory, we can cut and paste”. His firm is involved with Siemens Gamesa, a turbine-maker, in a big “hydrogen hub” to be built on the shores of Britain’s Humber estuary.
A sign on the wall
As a result of these forces, the price of hydrogen made from renewable sources is plunging, and seems likely to keep doing so. BloombergNEF predicts the price of green hydrogen using PEM electrolysis could fall to just $2 per kg by 2030, making it competitive with blue hydrogen (see chart 2). Morgan Stanley goes significantly further, arguing that at the very best…
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2021-10-08 14:50:09