It’s all about hydrogen in today’s issue – the fuel of the future, or fanciful folly depending on your perspective. Sustainability consultancy E3G released a report this week that seeks to find a green-tinted middle ground in the polarised debate around the efficacy of switching parts of the UK economy to run on hydrogen.
In the hydrogen debate, detractors decry hydrogen’s huge inefficiencies and practical challenges, while supporters see it as nothing short of vital for achieving ‘net zero’.
The E3G report seeks to cut through those binary positions to identify realistic use cases while warning against pursuing dead-end options being pushed by vested interests. It is worth reading in full, but here is my pick of the key recommendations:
- On the production side, the UK should focus exclusively on green hydrogen (from renewables) rather than taking a twin-track approach that includes the blue variety (derived from fossil gas)
- This requires parallel rapid growth in offshore wind, electrification, efficiency and the circular economy
- In end-use applications, UK should focus on high temperature heat in industry, shipping and aviation, and long-duration electricity storage — not domestic heating
- Hydrogen pipelines should be built around secure demand and supply, not around the question of how existing gas assets can best be kept functioning
This last point is crucial. The pro-hydrogen narrative is heavily influenced by the natural gas industry. Pipeline owners and regulated gas network operators are keen to maintain utilisation rates and avoid writing down the value of their assets.
Regulators almost certainly won’t let them jack up per-unit rates to compensate for fewer volumes flowing through their assets if net zero squeezed demand — so hydrogen ‘blending’ is a great way to shield gas industry incumbents from the economic threat posed by decarbonisation.
E3G places emphasis on identifying areas where hydrogen offers the best ‘value-add’ — and blending is not one of them. Mixing H2 with pipeline gas will be “challenging” over a certain share due to infrastructure constraints and the potential that “the quantities of green hydrogen that would be required never emerge”, the report states.
Similarly, the blue-versus-green debate is becoming a flashpoint in the fossil-versus-renewables cold war. Upstream operators need to convince capital markets that their prized 2P resources will not be stranded by the net zero push, and subsidised blue hydrogen provides the perfect cover.
North Sea oil and gas lobbyists want to convince government that ‘blue is cheaper than green’ in a bid to secure subsidies for steam methane reformation (SMR) with carbon capture, to convert CH4 into ‘low carbon’ H2. That phrase has caught on, with the UK government conflating blue and green under the misleading umbrella of ‘clean’ hydrogen.
On this, E3G is unequivocal:
None of which is to say hydrogen has no future whatsoever in the UK, or anywhere else for that matter. Using green hydrogen to replace dirty ‘grey’ H2 (made from gas, without carbon capture) in refineries is a good place to start attacking industrial emissions.
Wider industrial uptake of green hydrogen could cluster around centres of production (e.g. coastal sites near offshore wind farms). Since transporting H2 over long distances is problematic and inefficient, hydrogen clusters could make a lot of sense. But beyond that, who knows? Clusters might become the high water mark of hydrogen adoption.
Big vision, small budget
Cue yesterday’s big hydrogen ‘news’: Danish wind developer Ørsted’s grand unveiling of SeaH2Land, an ambitious vision to roll out 2 GW of new offshore wind capacity in the Danish North Sea powering a 1 GW electrolyser by 2030. This, in turn, would feed a Dutch-Flemish North Sea industrial port cluster to enable “sustainably-produced steel, ammonia, ethylene, and fuels in the future”.
Big industrials in the area – ArcelorMittal, Yara, Dow Benelux, and Zeeland Refinery – currently use 580,000 tonnes per year of grey hydrogen. The electrolyser would initially replace around 20% of that, growing to 1 million tonnes by 2050 – equivalent to roughly 10 GW of electrolysis, according to Ørsted.
There’s a long way to go, however. Ørsted and partners need to conduct a feasibility study and then pow-wow with regional authorities over “the framework and policies needed to support” such a development – i.e. they’ll lobby for subsidies to make it a reality. Nobody will be cutting a big cheque any time soon to bankroll construction of SeaH2Land (or any other proposed hydrogen cluster).
Therein lies the rub on hydrogen: who ultimately pays to build out grand visions of clean steel and zero-carbon cement production? These are among the hardest segments of the economy to decarbonise, yet solutions such as SeaH2Land won’t make economic sense without a triple-figure carbon price — which is not likely this side of 2030. Maybe that’s where targeted support, for example in the form of Carbon Contracts for Difference, will play a vital bridging role.
If the economics can be cracked, green hydrogen uptake could unlock some exciting possibilities. Next-generation floating offshore wind turbines, the next frontier in offshore wind development, could benefit enormously: freed from costly and complex long distance electrical connections to shore, floating offshore wind farms could be developed exclusively for in situ hydrogen production, with H2 shipped to coastal demand centres (perhaps in the form of ammonia).
Financing a dedicated offshore wind-powered hydrogen production facility would require cast-iron contractual certainty that a credit-worthy offtaker would absorb the required volumes, and at the right price. Only then can projects leverage debt finance to cover up-front construction costs.
In short, green hydrogen proponents will need to de-risk the entire value chain and apportion risk carefully among industry participants before big money lenders will make a play. This is exactly what the liquefied natural gas industry strived over many decades to achieve; LNG is only now on the cusp of becoming a mature commodity characterised by trade transparency and deep liquidity.
Producing and shipping LNG consumes energy, but the losses are nothing compared with those inherent in hydrogen. All things considered, the path to commercialisation of H2 will probably be very long, slow and strewn with obstacles. All the more reason to follow E3G’s advice and focus resources on those applications where hydrogen “adds the greatest value for climate, jobs, and a strong economic recovery”.
This article first appeared on Energy Flux
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