Hydrogen has a key role to play in the global transition to a low-carbon economy. Not only can the versatile gas decarbonise the power sector, it has uses in transport, buildings and heavy industry.
But its potential can be realised only if its own production becomes carbon-free. About 98 per cent of pure hydrogen generation currently involves carbon-intensive natural gas or coal feedstocks – ‘grey’ hydrogen. Most of the rest is produced via electrolysis, but only a small proportion uses renewable energy.
This ‘green’ hydrogen has manufacturing costs three or four times higher than carbon-intensive production. Electricity would need to be USD15 to USD30 per megawatt hour to close the gap but that is less than half current wholesale power prices. However, more and bigger electrolyser-based projects could provide the scale to halve costs.
The largest operational electrolyser-based project – 10MW – opened in Japan last year, using a 20MW solar array, also backed up by renewable power from the grid. Larger schemes are under construction with several GW-scale projects planned in Europe and elsewhere. A wind-to-hydrogen project, independent of the grid, with a 3MW turbine powering a 400kW electrolyser will supply hydrogen-fuelled taxis.
The annual global market for new electrolysers could rise from 1GW now to 7.8GW in 2025 and 33.2GW in 2030, led by Europe using pandemic-recovery funds to finance sustainable infrastructure.
Will there be demand for this increased supply? Demand for ‘pure’ hydrogen was estimated at 70 million to 74 million tonnes in 2018, with around half going into the refining sector, where it is used for desulphurisation, and about 42 per cent used in producing of ammonia for fertiliser. The rest goes to other chemicals.
Demand from European refiners is not expected to grow over the next decade but demand from the chemicals sector should expand and steelmakers and other industries are set to become new users.
Utilities are considering green hydrogen as a clean replacement for natural gas as coal usage falls. Blending it into the existing grid means households do not need to upgrade appliances.
Producing hydrogen where it is injected into the grid avoids transportation costs and heavy infrastructure investment. Hydrogen also offers an alternative to battery-powered electric vehicles. A fuel cell and an on-board compressed hydrogen tank can provide power.
Most electric-car makers have chosen battery power for the present, but hydrogen’s high energy density makes it more attractive for lorries, trains and potentially ships, which carry heavy goods over long distances. Japan, Korea and China have hydrogen buses and trucks.
The lack of hydrogen refuelling infrastructure globally is a key constraint but major countries have announced targets to build more than 6,000 refuelling stations by 2025. Europe alone could require 3,700 by 2030, at a cost averaging over EUR2 million each.
We believe government support is essential to drive investment. Policy for hydrogen has been historically strong in Asian markets, including Japan and South Korea.
Momentum for green hydrogen is rising, particularly in the European Union. Chile has ambitious plans to become Latin America’s leader in the technology and we expect President Biden’s push for clean energy to improve policy sentiment around green hydrogen and fuel cell technologies.
First published 13 January 2020.
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The following analyst(s), economist(s), or strategist(s) who is(are) primarily responsible for this report, including any analyst(s) whose name(s) appear(s) as author of an individual section or sections of the report and any analyst(s) named as the covering analyst(s) of a subsidiary company in a sum-of-the-parts valuation certifies(y) that the opinion(s) on the subject security(ies) or issuer(s), any views or forecasts expressed in the section(s) of which such individual(s) is(are) named as author(s), and any other views or forecasts expressed herein, including any views expressed on the back page of the research report, accurately reflect their personal view(s) and that no part of their compensation was, is or will be directly or indirectly related to the specific recommendation(s) or views contained in this research report: Sean McLoughlin
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