Reality check: Hydrogen’s role in the decarbonized economy.
I used to think about hydrogen as a game-changing fuel that could significantly decarbonize the economy and I was somewhat disappointed reading the recent article in the Financial Times (https://on.ft.com/44R2man) about the potential role and challenges of the green hydrogen. Hydrogen as a fuel offers several significant advantages. First, it can utilize existing gas infrastructure with some adaptations. Second, refueling a hydrogen vehicle takes about the same time as refueling with gasoline or natural gas, unlike the longer charging times required for electric vehicles. Lastly, hydrogen can enhance network stability by utilizing excess power produced during windy and sunny periods. Hydrogen produced at nearly zero power cost during these periods can be stored for later use in industry or even in power generation.
And I was not alone in my high expectations related to hydrogen. According to FT, projections indicated a surge in demand to 800 million tonnes per annum (Mtpa) by 2050, representing 20% of the global net-zero energy mix. Most of this hydrogen was expected to be “green,” produced using renewable electricity, with a smaller share being “blue,” derived from natural gas with carbon capture. The International Energy Agency’s 2021 net-zero scenario required around 70 Mtpa of green hydrogen capacity by 2030, prompting Europe to set a target of 20 Mtpa. This spurred developers, manufacturers, and policymakers to aggressively pursue hydrogen projects and subsidies.
However, as stated in the article, enthusiasm has waned due to escalating costs and insufficient subsidies. Initial project costs have surged, sometimes doubling, and subsidies have fallen short of the estimated $2-4 trillion needed by 2030. The anticipated 70 Mtpa capacity by 2030 now appears unattainable, with more realistic estimates closer to 16 Mtpa.
The slow progress is partly due to the inherent difficulties of scaling up hydrogen production. Moreover, electricity-based technologies like electrothermal batteries and heat pumps have advanced rapidly, challenging hydrogen’s potential role. Consequently, hydrogen’s projected contribution to a net-zero 2050 might only reach 350 Mtpa, less than half of earlier estimates.
Currently, green hydrogen production remains minimal, with most hydrogen being “grey,” derived from natural gas without carbon capture. Existing green hydrogen projects are small-scale and pilot-based, producing less than 0.1 Mtpa, far below initial expectations. While developers continue to announce projects, actual investment has lagged, with only 3 Mtpa of production capacity receiving final investment decisions.
High costs plague the sector. Electrolysis plants are more expensive than anticipated, with costs up to 65% higher than expected. Additionally, the associated infrastructure, including pipes, cables, and purification systems, further inflates expenses. The cost of green electricity needed to power electrolysers is also higher than hoped, leading to a near-term production cost of $4.50 to $6.50 per kilogram, significantly above the most optimistic estimate, as stated in the article. The analysis recently performed by KYOS shows that market price for green hydrogen should be above $7.50 per kilogram to achieve the load factor for electrolyzer high enough to generate profits, which is even the higher than the numbers presented in FT. Given that 1kg of hydrogen contains 33.3kWh the cost for energy ranges between $150/MWh and 250/MWh, which is very high comparing with alternative energy carriers. For example, natural gas costs $8/MWh in the US, and around €30/MWh in Europe. This means that only under essential subsidies this the hydrogen production may payoff for industries such as transportation, where alternative technologies appear much less costly.
Despite these setbacks, hydrogen’s long-term prospects remain viable, particularly for sectors that cannot be easily electrified, such as heavy industry and long-distance transportation. By 2050, green hydrogen demand might reach 350 Mtpa, driven by industries requiring hydrogen as a feedstock or for high-temperature processes, as stated in the FT article.
Recent positive developments include the planned Neom hydrogen project in Saudi Arabia and Europe’s Hydrogen Bank’s successful auction for new projects. However, hydrogen’s future role will likely be more modest and regionally concentrated than initially envisioned. While hydrogen’s early hype has faded, its potential to significantly contribute to decarbonization remains, albeit with substantial challenges ahead.
Keep in touch and sign up to our Newsletter
