As hydrogen has taken an even more prominent place in energy plans in Europe in particular, I thought it was worth revisiting some of the principles to give people a framework. I’ve used Michael Liebreich’s work on the topic, which I find refreshingly non-ideological. It should be noted that there might be a discrepancy between the decarbonisation pathways that are most efficient on paper (i.e. electrification, in most cases) and what actually unfolds, which will be driven by markets, incentives, and who has the balance sheet and infrastructure to make things happen. That means that we probably will get some hydrogen use in sub-optimal uses from an energy efficiency and cost perspective. Also, green hydrogen is experiencing tailwinds from the current energy crisis, with prices of natural gas (the main input for almost all current H2 production) triple the average over the last several years. And there are pathways using SMRs as low-carbon heat sources, that could conceivably produce hydrogen at a scale and cost that would expand its set of viable use cases. Lucid Catalyst’s work on that here. The podcasts on supply and demand covered here are the audio versions of blogs that Michael Liebreich wrote for Bloomberg New Energy Finance (BNEF) - original articles here and here. It is also worth checking out his updated blog on the demand side using the Clean Hydrogen Ladder (graphic below). Disclosure: I first published the below 6 months ago (pre-substack) and am re-using as am a bit short on time this week.
Key Takeaways: Supply - green H2 generation will be centralised, not distributed, and will mostly happen in places with significant complimentary renewable energy resources (wind & solar) and be imported to places without. Demand - when considering new H2 applications, it needs to be understood that not only does hydrogen need to beat the incumbent, but it also needs to beat every other alternative (mostly electrification). The only scale uses of hydrogen in addition to its current uses will be as a chemical input (which it is already, but the market will expand), as a solution to long-term energy storage to cover for periods when the sun doesn’t shine and the wind doesn’t blow, and in shipping & maybe long-haul aviation.
Supply
4 Elements that go into the price of green hydrogen:
Cost of electricity
Cost of electrolyser
Capacity factor of electrolyser (% of time it is in use)
Cost of capital
The main ‘colours’ of hydrogen:
Grey - made from fossil fuels (mostly steam-methane reforming - CH4 + 2H2O -> 4H2 + CO2)
Blue - Grey as above but with carbon capture and storage (there is some debate about the carbon benefits of blue hydrogen - detractors here, rebuttal to detractors here)
Green - hydrogen produced by splitting water using carbon free electricity, generally with wind + solar in mind, although nuclear would of course be carbon free also
EU strategy - envisages vast expansion of green hydrogen through renewable electricity, which would DOUBLE electricity demand in Europe. [Doing this in addition to decarbonising all of current electricity demand, plus the additional demand through electrification of heating and transport is a non-starter - hence import from places with more abundant renewable resources.]
EU will almost certainly have to import hydrogen from places in the world with more abundant wind + solar resources - Morocco, Saudi Arabia, Oman, etc.
Chinese alkaline electrolysers are currently far cheaper than the solid oxide and proton exchange membrane (PEM) electrolysers that Europe has pursued. The EU’s rationale for going after the more expensive sort is that they can be nimbly ramped up and down with variable renewables. However, that approach is flawed for two reasons - 1. Even with free electricity and very high renewables penetration, the capacity factor would be so low as to make this green H2 uneconomical (need dedicated firm electricity source to have high capacity factor), and 2. Advances in the alkaline electrolysers mean that they are now adequately responsive for variable power.
Demand
When considering new applications for hydrogen, not only does it need to beat the incumbent, but also all other alternatives (in most cases this is electrification).
This important paper found that 78% of industrial energy use in Europe could be electrified using technology available today, with that proportion going to 99% including technology currently under development. That augers ill for ambitions to use green H2 because of the inefficiency of turning electricity to H2 then burning H2 for heat. [Also the need for heat energy in industry is a good argument for expanding nuclear power through small modular reactors as they create heat in addition to near-24/7 electricity.]
H2 use in steel and glass production only starts to work economically with a carbon price of EUR 120 / tonne
Some industrial uses of heat require short bursts of high heat which could place strain on the electricity grid and therefore be good candidates for heat from hydrogen, e.g. aluminium, ceramics
Biggest new use case is likely to be long-term (i.e. > 1week or even seasonal) storage of excess electricity - hydrogen has the advantage that it can be stored indefinitely in unlimited quantities. Even if the cost of that marginal power is relatively high, it will represent a small percentage in a grid dominated by low-cost renewables, thus still delivering zero carbon electricity year round at an affordable cost. (Note recent announcement of Hydrogen City in Texas - an eventual 60GW project that will be using salt caverns as storage and using green H2 as an input for renewable methanol for rocket fuel for Space X amongst other things - green ammonia, SAF, etc.)