A very big balancing act
Creating the new hydrogen economy is a massive undertaking
It is also a delicate one
Oct 9th 2021
NEW YORK
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 locations for renewables in America, green hydrogen will be able to match grey hydrogen’s $1/kg “in 2-3 years”.
The markets that will matter for green, blue and pink hydrogen will be those where they offer a clear advantage over other non-fossil-fuel-based approaches, most notably renewable electricity. One of those is in the electricity sector itself. This month the New York Power Authority, a utility, is starting a pilot project in which green hydrogen made from hydroelectric power is blended into natural gas, in concentrations up to roughly 30%, to generate electricity from a normal gas turbine.
This looks like thermodynamic nonsense, as the amount of electricity produced by burning hydrogen in a turbine can never be as much as the amount that was used to make it; feeding the energy used to power the electrolyser directly into the grid would provide more kilowatt-hours. But not all kilowatt-hours are equal. Sometimes renewables produce electricity in excess, driving its price down to zero or even, on occasion, below—there are some situations when people get paid to take electricity off the grid, or charged for producing it. In a system with a carbon price it could make sense to use green hydrogen produced when electricity is cheap to lower the cost of meeting supply with gas turbines when electricity is dear.
The same also holds if the hydrogen is grey but the hydrogen producer does not have to pay the price of its emissions. That provides no environmental benefit—the net emissions are higher, even though the emissions from the power plant are lower. Nevertheless some argue, possibly sincerely, that it is a way of increasing demand for hydrogen and thus priming the market for a greener future.
Hydrogen is not the only way to balance the times and places where electricity is in surplus with those where it is in high demand; large interconnected grids help a lot, as does battery storage and smart-grid technology that reduces loads when necessary. But for long-term storage that can deal with differences from season to season and even year to year, hydrogen looks better than any of its competitors.
An intriguing project under way in Utah involving the American arm of Mitsubishi, a Japanese conglomerate, will make hydrogen from local renewables, store it in nearby salt caverns and use it as a fuel to power a giant turbine producing clean electricity that will ultimately reach Los Angeles. Longer term, pure hydrogen could be sourced from far away. Marco Alverà, boss of Italy’s Snam, one of the world’s largest pipeline operators, and author of a recent book on hydrogen, believes green hydrogen can be shipped from Tunisia to Bavaria economically using a mix of existing and new pipelines. Australia and Chile are hoping to export hydrogen made from abundant local solar energy by ship.
Another market where hydrogen has an apparent edge over renewable electricity is steel. Coking coal is integral to today’s steelmaking, which accounts for about 8% of greenhouse-gas emissions; it provides not just the heat needed for the process but also the chemically necessary carbon. An alternative process, called direct-reduction, uses hydrogen to do much of the chemical work that carbon does in current smelters. ArcelorMittal, a European steel giant, recently committed $10bn to slashing greenhouse-gas emissions and is looking to hydrogen as a way to do it. US Steel has formed a partnership with Norway’s Equinor, an oil and gas company which is a ccs pioneer and now moving into blue hydrogen. Hybrit, a Swedish industrial coalition, delivered the world’s first batch of green steel to a customer in August.
Industrial processes like chemical reactors, cement kilns and glassmaking also require high temperatures, a requirement not always easily provided by electricity. In a recent report on the hydrogen economy the International Energy Agency (iea), a think-tank operated by rich-world governments, notes that hydrogen can directly replace natural gas in some processes already. Ammonia can also sometimes be “dropped in” as an easy substitute.
Crying for leaving
When it comes to aviation and shipping the role of hydrogen is a matter of intense debate. For short trips batteries might suffice. But planes using fuel cells could give battery-electric alternatives a run for their money. ZeroAvia, a startup backed by British Airways and Jeff Bezos, Amazon’s billionaire founder, completed the first fuel-cell-powered flight in a commercial-sized aircraft in Britain a year ago. Ferry operators in Norway and on America’s west coast are now experimenting with short-haul ferries powered by hydrogen fuel cells.
Airbus, a European aeroplane-maker, is giving hydrogen its full-throated support. In September, it confirmed a plan to power planes using hydrogen by 2035. Guillaume Faury, the company’s boss, extolled its virtues: “Hydrogen has an energy density three times that of kerosene… is made for aviation.”
On the basis of weight, that is true. On the basis of volume, alas, it is not. At room temperature and pressure, hydrogen is the least dense gas in the universe. So although by the kilogram it may carry three times more energy than kerosene, by the litre it carries 3,000 times less. The gas can be pressurised, which helps, especially for applications where big tanks are not a problem. But to get to within a factor of three of kerosene’s performance per litre hydrogen has to be liquefied. That requires chilling it down to -253°C (-423°F).
Little surprise, then, that Boeing, Airbus’s American rival, is more guarded. Its boffins agree that “hydrogen is fundamental to all sustainable aviation fuels”. But they reckon that flying a 747 across the Atlantic using liquid hydrogen would require filling all its passenger and cargo space with fuel. That is why for longer journeys, planes may end up using clean-hydrogen-based ammonia (as many large ships may do, too) or, more likely, synthetic hydrocarbons. In aviation, those synthetic fuels will have to be able to compete with advanced biofuels, the obvious alternative.
Michael Liebreich, a clean-energy guru, notes that, as one moves away from applications where hydrogen has clear benefits over renewable electricity, it becomes harder to see serious markets for the gas. To illustrate his point he has developed a “hydrogen ladder” which ranks uses from indispensable to unaffordable (see diagram).
An intriguing borderline case is afforded by domestic heating. On an efficiency basis, electrically powered heat pumps beat domestic boilers fired by hydrogen quite handily. But retrofitting urban housing already equipped with boilers to burn hydrogen may be more attractive in some places than trying to fit heat pumps on to every building. Britain is likely to be a test case for this trade-off. In August, its government unveiled plans for 5gw of low-carbon hydrogen production capacity by 2030 to replace natural gas in domestic and industrial applications.
Stairway to heaven
Near the bottom of Mr Liebreich’s ladder are fuel-cell electric vehicles (fcevs) used as cars. Toyota, a Japanese automobile giant, has longed to build them since the early 1990s, investing billions in the technology. Official visitors were ferried around Tokyo in such vehicles during the recent Olympic games, and the Japanese government has plans to expand the country’s fleet of fcevs, which numbered just 3,600 in 2019, to 200,000 by 2025. The Chinese government says it wants 1m of the things by 2030.
But as Mr Liebreich and many others point out, this does not seem sensible if the competition is a battery-powered electric car. Fuel cells add to an electric car’s price and complexity while offering no benefit in performance. They are also inefficient. About four-fifths of the power fed into a battery-powered electric vehicle gets used; conversion losses mean that an fcev is likely to manage only half that level of efficiency. A veteran Japanese utility executive whispers that Toyota’s stance makes no sense: “Millions of fuel-cell cars won’t happen. Even Honda gave up. Pride is why Toyota is sticking with it.”
That does not rule out other forms of road transport. Many of the world’s big lorry-makers, including Europe’s Volvo and Daimler, are racing against startups like Hyzon to bring hydrogen-fuelled heavy lorries to market on the basis that the weight and recharging time of batteries means they are not able to be used. According to dhl, a logistics company, when lorries with heavy loads need to travel farther than 200km (120 miles) batteries become unattractive.
America’s Cummins, known for decades for its conventional engines, is betting big on hydrogen, having acquired firms making electrolysers, fuel cells and hydrogen tanks. Tom Linebarger, its chief executive, says he is highly confident that hydrogen lorries will be “even money” with diesel lorries on total cost of ownership by 2030. Customers, he says, are worried about the reliability of vehicles with batteries. “If I am a distribution company and have fuel-cell vehicles using hydrogen, I don’t need to depend on the grid.”
As on road so, perhaps, on rail. France’s Alstom, the biggest rail manufacturer outside China, is already running hydrogen-powered trains in Germany. Compared with diesel trains, these whizzy locomotives emit no local air pollution, make very little noise and offer a ride as smooth as that of conventional electric trains. The firm thinks many of the 5,000 diesel trains to be retired in Europe by 2035 could economically be replaced by hydrogen trains. By 2030, hydrogen trains could make up a tenth of those not already electrified.
The Boston Consulting Group (bcg) reckons that hydrogen could be competitive on price with other ways of fuelling trains by 2030 even with no carbon pricing. The other big early market it sees is in construction equipment and other applications where the high torque provided by electric motors is useful and the long charging time for batteries a frustration (fork-lift trucks have proved to be one such niche). bcg expects heavy lorries, ships and applications in the chemicals industry will be close behind, and predicts an annual $200bn market for hydrogen-related machinery and components by 2050.
But this makes sense only if supply and demand grow in tandem. A business-as-usual approach in which supply was not stimulated would lead companies to double down on incumbent dirty technologies, particularly in industrial applications, as they update ageing capital equipment, leading to a pernicious lock-in of legacy equipment. But stimulating supply will generate resistance, both from incumbents in other fields and from finance ministries, unless demand is visibly increasing alongside it and delivering things which people want.
Comparing it to the renewables industry, which could feed in to existing grids, Mr Heid of McKinsey likens the hydrogen economy to a heavy flywheel: “It takes more to get it spinning, but once it’s going it really goes.” He might also add that spinning up a flywheel is a tricky business; let it go even a little off balance and you risk having it tear apart.
https://www.economist.com/briefing/2021/10/09/creating-the-new-hydrogen-economy-is-a-massive-undertaking
