Unpacking the Green Hydrogen Economy for the layperson
The hydrogen aspiration
Hydrogen, hydrogen, hydrogen! The miracle fuel of the green energy transition. One of the planet’s most abundant elements that is blessed with high energy density. For hydrogen’s proponents (and there are many of them), not only can green hydrogen provide carbon free molecules to heat and feed industry, but it is also the missing link that enables low-cost ‘surplus’ renewable energy to be stored and transferred across time and place to power the green energy future. From water to energy to water – there couldn’t be a more perfect energy transition story.
The hydrogen momentum
As a layperson, you wouldn’t be alone if you felt that hydrogen was to the energy transition what location is to real estate. Clean green hydrogen has generated enormous attention over the past two years enjoying unprecedented political and business momentum, with the number of policies and projects around the world expanding rapidly (now nearly 400 hydrogen projects globally). Some twenty countries, collectively accounting for nearly half of global GDP, have already adopted hydrogen strategies, or intend to do so; and Australia is in the thick of it. Australia is endowed with the key ingredients for the green hydrogen economy with world leading renewable energy resources, strong export infrastructure, and proximity to high potential export target markets in Asia. In a rare outcome, development of a hydrogen industry in Australia has bipartisan support at the Federal level and there is strong alignment with all State and Territories hydrogen strategies.
Proponents are touting a green hydrogen economy as key to the energy transition. The catch cry is to scale up technologies and bring down costs to allow hydrogen to become widely used in powering our mobility, heating our living rooms, feeding our industry, and storing our precious wind and solar energy for when and where we most need it. However, for an industry that is subject to immense government subsidy in order to launch, identifying where and how to allocate this debt fuelled public funding is key to determining whether we are spending our kids inheritance wisely.
A return to hydrogen chemistry and thermodynamics
To help me make sense of discussion and debate around varying topics of the green hydrogen economy such as; electrolyser technology learning curves, giga and megawatt power, and ammonia and methocyclohexane (MCH) vectors for hydrogen transport, I was compelled to return to my high school chemistry and thermodynamics to try and understand hydrogen’s inherent potential.
Hydrogen doesn’t exist on its own; it needs to be manufactured and currently by fossil fuels
While it is true that hydrogen is an abundant chemical element, it rarely exists on its own and therefore needs to be manufactured. As it happens, today more than 120mt of hydrogen is manufactured globally. It is mainly used in making ammonia fertiliser for food production, for chemicals such as methanol, and to remove impurities during oil refining. More than 98% of this ‘black’ (coal sourced) or ‘grey’ (natural gas sourced) hydrogen is currently manufactured through the conversion of fossil fuels in the Steam Methane Reforming (SMR) chemical process – which as it turns out is very carbon intensive. As an energy intensive chemical process, hydrogen created via SMR generates nearly 8-10x (or as much as 20-35x if sourced from coal) as much CO2 as the mass of hydrogen resulting from the process. To put these numbers in context, current CO2 emissions globally from SMR are around the same as the global aviation industry each year. Umm, so far from being a miracle fuel, in fact hydrogen seems to be quite a problem to solve in the world’s 2050 decarbonisation roadmap.
Blue and green manufacture of hydrogen provide more carbon friendly manufacturing alternatives
‘Blue’ hydrogen is hydrogen manufactured by converting fossil fuels in the Steam Methane Reforming (SMR) chemical process that is equipped with carbon capture and storage (CCS). While blue hydrogen seems to have its proponents through its ability to solve a large part of the direct carbon emissions from SMR, opponents bristle at the increased demand for gas (40% higher gas consumption in CCS versus without CCS), the further locking in of fossil fuels into the energy transition, and the very harmful CO2 impacts of fugitive methane in blue hydrogen’s supply chains.
What is green hydrogen? It has been around for so long, so why hasn’t it been adopted?
Enter ‘green’ hydrogen. Green hydrogen is generated by the breakdown of water into its hydrogen and oxygen elements through an electrolysis chemical process powered by renewable energy. Electrolyser technology is not new and has been around for nearly 250 years! However, on previous occasions, rising interest in green hydrogen fizzled out without lasting effect. The key question is whether fundamentals have changed sufficiently to finally allow green hydrogen to have its day?
Hydrogen manufacture is very energy intensive and hence expensive to make
So what’s the catch? The electrolysis process is very energy and capital intensive – a 10MW electrolyser (large by today’s standard) produces around 1ktpa hydrogen and needs somewhere between 2-4x (20-40MW) the renewable wind and solar generating capacity to power it. To put this in perspective, Australia currently has only 1.5MW installed electrolyser capacity with a target of 3x 10MW electrolysers by 2023. If Australia’s current hydrogen demand is around 3mt this would require 30GW of electrolysers (1000x the capacity targeted for 2023) and an additional 60-120GW of renewable energy to purely feed Australia’s existing hydrogen demand. This renewable energy investment is over and above the renewable capacity required to ‘green’ existing power supply and support the further electrification of energy use – with applications such as electric vehicles. These are immense numbers in capital equipment, wind farms, solar panels, batteries, and distribution infrastructure scattered across the countryside just to service Australia’s existing hydrogen demand.
Prioritising the green hydrogen economy on decarbonising its existing industrial carbon footprint
Not surprisingly, green hydrogen is some 2-4x the cost of its grey hydrogen cousin with no natural customer demand without immense government subsidies (>75-80% currently). Significant improvement is needed to remove the very large ‘green’ premium of green hydrogen. Given the size and scale of hydrogen’s existing market as an industrial feedstock, focusing green hydrogen’s development on decarbonising this market segment seems to be the least-regrets place to launch a green hydrogen economy. Importantly there needs to be a way to overcome the usual chicken-or-egg problem of demand waiting on supply waiting on demand; a cycle that will only be broken with significant government subsidies. The solution to de-risking this public investment is to anchor early hydrogen infrastructure around the least-regret hydrogen demand as a molecular feedstock into industry.
Prioritising green hydrogen around industrial demand has additional benefits in supporting a nascent green hydrogen industry. Industrial demand is generally clustered with a few customers in a small number of geographic locations (industrial hubs such as Gladstone and Newcastle). With coordination, this demand can underpin development of scale hydrogen supply and help drive electrolyser costs and associated infrastructure down the technology learning curve. Locating and matching scale hydrogen supply close to scale demand also helps reduce complexity (and cost) around storage and distribution with more of a just-in-time supply. In addition, industrial clusters are generally located close to ports where hydrogen infrastructure could primarily serve the initial needs of the domestic market while also sowing the infrastructure seeds for a hydrogen export market should it emerge.
Solving todays problem is a precursor to exploring broader application of the green hydrogen economy
While forecasters of the 2050 hydrogen economy predict a future hydrogen market size many multiples of today due to a broadening role of green hydrogen in the energy transition, it is hard to see how and why this will eventuate if green hydrogen can’t be developed as a credible alternative to decarbonising its existing industrial carbon footprint.
Forecasters are predicting the green hydrogen economy to be multiples (3-8x) larger than today’s grey hydrogen economy (albeit with a high degree of forecasting variance) by 2050. However, key chemical and thermodynamic characteristics of hydrogen have a big impact on the potential for hydrogen to be a cost-effective energy source in the transitioning energy markets. Given how much green energy is required to decarbonise where fossil-based hydrogen is already polluting today, a cautious and prioritised approach is required to exploring green hydrogen’s broader application – particularly if heavily subsidised by public money.
While in theory hydrogen can be used in many applications, it won’t magically happen in sectors that don’t currently use it today – just because it is green. Hydrogen is going to have to win, use-case by use-case, and it will not be easy. Not only does it have to beat the incumbent technology, it also has to beat every other zero-carbon option for that use-case. This is where green hydrogen’s potential really meets electrification reality.
So to explore hydrogen’s broader application, let’s again start by digging deeper into my high school science memory bank. As it turns out, isolating the hydrogen molecule through electrolysis powered by low-cost renewable energy is just the start of where chemistry and thermodynamics play an important role in understanding green hydrogen’s potential.
Hydrogen’s low volumetric density makes it challenging and expensive to store and move
Matching hydrogen’s attractive high energy density is its more problematic low volumetric density – that is, it needs a high level of compression to store hydrogen efficiently. You guessed it, compression is an energy intensive process. Hydrogen’s most dense form is as a liquid, however, liquefaction only occurs under high pressures (180 psi) and at temperatures of negative 253 degrees. These pressures and temperatures pose significant challenges for materials used in containment and transportation – rendering most of the existing storage and distribution capital stock around the globe unsuitable for hydrogen. In response to these challenges, much enquiry is focused on exploring more ‘friendly’ hydrogen storage and transport ‘vectors’ such as converting hydrogen to ammonia or methocyclohexane (MCH). Yep again you guessed it, more energy and cost to combine and separate these alternative chemical transporters in order to put green hydrogen to work.
Low cycle efficiency
Adding to storage and distribution challenges is hydrogen’s low cycle-efficiency. Cycle efficiency is effectively the amount of energy that is retained from a starting green electron (from renewables) after the process of converting this electron to a hydrogen molecule (through electrolysis) and then storing and shifting it around before returning it to provide end-use energy as an electron (through a fuel cell).
Let me put cycle efficiency into context with some numbers. Say we start with 100kWh of renewable energy. By putting this renewable energy through a hydrogen electrolyser, it suffers an immediate 22% energy loss and with transport, storage and distribution (compression) we lose about the same energy again. This means out of the 100kWh of renewable energy put into a hydrogen electrolyser, only around 60kWh of useable energy will remain at the point of sale/end-use application. This is before a further 50% conversion losses associated with processing hydrogen through a fuel cell to put green hydrogen to work. By contrast, transport, storage, and distribution of pure electricity results in only 5-10% energy losses, meaning that an initial 100kWh of energy would result in 90-95kWh of useable energy at the same point of sale. Almost all this available electrical energy is transferred to working energy through an electric motor.
This leads to an important conclusion – putting the green electron to work directly is far more energy efficient (and thereby cost competitive) than converting the green electron to a green hydrogen molecule.
This conclusion is important when unpacking the potential applications of green hydrogen in; storing our precious wind and sun energy for when and where we most need it, heating our living rooms, and powering our mobility.
Hydrogen’s is not the most efficient form of storing energy
These thermodynamic characteristics of low volume density and low cycle efficiency are the biggest barriers to exploiting hydrogen’s potential as an efficient carrier and store of energy – particularly where other distribution and storage alternatives exist. In short, when green hydrogen is in direct competition with electricity, it has an immediate cycle efficiency disadvantage and costs a great deal more. So why not save a fortune and an awful lot of hassle by using the electricity directly, rather than converting it into hydrogen gas?
Heat pumps are already a much more efficient application for residential heating
Equally, the extension of green hydrogen into residential and industrial heating applications is not straightforward. First and foremost, there are no residential hydrogen boilers in existence today and there are much more efficient electrical residential heating alternatives. Electrical heat pumps today are 2-4 times more efficient than a potential hydrogen boiler, meaning to get the same heating output would require setting aside 2-4x the land mass to host even more renewable energy to achieve the same heating application as today’s heat pumps. This is all before getting into the valid debate around safety, regulation, and social acceptance of hydrogen in the home.
But what about blending hydrogen (10-20% of the feed) into the gas distribution networks – isn’t this a beneficial transition path and wouldn’t it help to underpin a transitioning hydrogen economy? It’s understandable to expect that blending 20% of green hydrogen into the natural gas grid would save 20% of greenhouse gas emissions. However, a 20% mixture of hydrogen with natural gas in a pipeline has only 86% of the energy content of pure natural gas. Therefore, you’d have to burn 14% more of the blended mix to create the same heat energy. This means the savings in greenhouse gas emissions are nowhere near 20% — they’re closer to 7%.
A smooth transition between natural gas and hydrogen in our current natural gas pipeline infrastructure isn’t possible. Once blending limits are maximised (circa 10-20% hydrogen blend), full replacement of the existing natural gas infrastructure is required. Given how valuable hydrogen is, blending it into the existing gas grid does not make sense as a transition plan due to its high cost and its limited impact on emissions savings.
Even in high temperature (>800 degrees) industrial heating, a targeted application for green hydrogen, more cost-effective electrical options are available including resistance furnaces, infrared heaters, induction furnaces, plasma heating, and electric arc furnaces.
Mobility and transport applications
In light vehicles, the game in most geographies is all but lost for hydrogen fuel cells. A comparison of cycle efficiency shows battery vehicles 3 times more energy efficient than hydrogen fuel cell cars. Electrification is simply too easy, prevalent, cheap, and effective.
But what about long-distance haulage, doesn’t hydrogen carry significantly more energy than the equivalent weight of batteries? Or commercial vehicles where recharge/refuelling times have a more direct impact on the financial bottom line? While hydrogen retains some appeal in these segments, end-use applications may be narrower than first thought with around 80 percent of the daily driving distance being less than 400km, well within the range of existing battery technology. Additionally, research continues into more efficient batteries, such as solid state or lithium sulphur, which would extend the current advantage of battery electric trucks and buses, further shrinking the case for hydrogen. Add on top of this sparse and high-cost refuelling infrastructure, low market demand impacting heavy vehicle supply, limited track record on full life cycle costs of hydrogen vehicles, no second-hand market for hydrogen vehicles, and varying regulatory standards – hydrogen’s penetration into land transport is likely to be slow.
That only leaves long-haul shipping and long-haul aviation as areas where green hydrogen might have a play. However, in these applications, liquid fuels have many advantages over hydrogen, most significantly improved energy density and power-to-liquid; making for a stronger fuel than pure hydrogen. In addition, to put the green hydrogen generating challenge into perspective, to power all European air traffic with green hydrogen, Europe would need a land mass larger than the size of Hungary to operate 119,800 large wind turbines. As such, low-carbon biofuels are likely to be a more attractive solution in these applications.
The next section is focused on unpacking the potential applications of green hydrogen further into industrial applications and in supporting ‘green’ steel. I also unpack the social and regulatory challenges of powering the future green hydrogen economy and explore the risk of misallocation of scarce resources for an emerging industry entirely dependent on public subsidies.
Other industrial processes like steel making
There is a strong case that the demand for hydrogen in its existing industrial applications (such as oil refining and fertiliser production) will reduce over time. In fact, a reduction in oil refining is the whole point of the energy transition and increasing options to reduce nitrogen fertiliser use is being pursued with more refined precision agricultural practices. However, the negative demand thematic in existing industrial applications could be offset by the potential for green hydrogen to decarbonise the steel industry. The prize is high as every tonne of steel produced emits on average 1.85 tons of carbon dioxide, equating to about 8 percent of global carbon dioxide emissions.
There are two ways to use green hydrogen in steel production. First, it can be used as an alternative injection material to pulverised coal (PCI), to improve the performance of conventional blast furnaces. While the injection of green hydrogen into blast furnaces can reduce carbon emissions by up to 20 percent, it is not carbon-neutral steel production because regular coking coal is still a necessary reductant agent in the blast furnace. Second, hydrogen can be used as an alternative reductant to produce direct reduced iron (DRI) that can be further processed into steel using an electric arc furnace (EAF); an outcome that would be nearly carbon-neutral steel production. This presents its own challenges in terms of the reliable supply of DRI.
To put the size of the challenge in steelmaking in perspective, Bluescope Steel has considered the implications of relining their blast furnace to handle hydrogen. Capital costs are estimated at more than A$2.8 billion (more than four times more expensive than relining a blast furnace) and would require an electrolyser of around 1.4GW; requiring 3GW of installed renewable electricity generation capability coupled with storage to ensure continuous supply. This compares to the largest electrolyser operational in Australia today of 1.5MW and the current energy demand of the steelworks today of around 100MW. While the prize for growing a green steel industry for a renewable energy superpower like Australia is very high (today Australia produces 38% of global iron ore and 18% of metallurgical coal but produce just 0.3% of the worlds steel), the overall cost is equally high, and the technology has yet to be proven on a large scale.
Importing energy economies driving some exceptions to simple rules
As a simple rule, if an electron can be used directly it will likely outplay the cycling of the electron (electrolyser) to a hydrogen molecule (fuel cell) to an electron every day of the week. However, this simple rule comes with one important caveat.
If a country is ‘short’ in energy generating capacity, and in a renewable energy world, constrained in land mass then it will be an energy importer. Where energy can be imported over wires in the form of electrons then it will generally always be economically sensible to do so (as happens across much of Europe today). However, there are some major industrial countries (such as Japan, Korea, Taiwan) that are ‘short’ in energy, ‘short’ in land mass, and not easily supplied with imported electrons through wires. They have and will likely continue to be dependent on importing energy molecules – today in the form of fossil fuel molecules and tomorrow potentially in the form of a clean hydrogen molecule.
If energy is imported in the form of a hydrogen molecule, the end-use opportunity for hydrogen may be broader than those that exist in the countries from which those hydrogen molecules were sourced. In energy ‘short’ economies, the penalty to take an imported hydrogen molecule and put it to work in a fuel cell versus burning it in a generator to then power a battery electric vehicle may be less dramatic. Therefore, it is not surprising that Japan is the leading proponent globally of hydrogen fuelled mobility, but equally not contradictory that countries like Australia shouldn’t be following suit.
An important debate to minimise the risk of misallocation of valuable public resources
Public subsidies for hydrogen in sectors exposed to electrification stand in stark contrast to subsidies for hydrogen in the industrial sector; the latter operate in a context where no other decarbonisation option is available. A realistic discussion on the future breadth of the green hydrogen economy is important to minimise the risk of misallocation of valuable public resources.
Throughout this series, I founded my discussion on the underlying chemistry and thermodynamics of hydrogen. As I close out my enquiry on the social implications of green hydrogen, I empty the memory bank of my high school science days in relation to hydrogen’s chemical and thermodynamic characteristics.
Hydrogen’s manufacture is water intensive
Not only is the manufacture of hydrogen through electrolysis energy intensive, it is also water intensive; consuming at minimum 9 litres of water to produce every 1kg of hydrogen. This raises two challenges, firstly whether water is available where the cheap renewable power is generated and secondly, the opportunity cost of using such water for producing hydrogen versus redirecting to other value adding applications for that water. In a world of increasing water scarcity, hydrogen production at scale will be another significant pressure on such a valuable life-giving resource. The social debate around water use is still in its infancy and likely to impact the trajectory of green hydrogen going forward.
Its high flammability makes safety and social acceptance critical
Hydrogen’s high energy density brings an additional risk of increased flammability; being 4 x the flammability of existing fossil fuels. Hydrogen’s flammability risk was famously imprinted on historical mindsets with the Hindenburg disaster in 1937. If the hydrogen industry is to emerge at scale, engaging the community around how and where hydrogen is manufactured, stored, and distributed and in what sorts of applications it is applied will be required; and this has yet to fully unfold. As the hydrogen industry looks to scale up it will have to address both the real issues and community perception of its safety; communities will expect it and regulators will demand it. How this debate evolves will again influence costs and breadth of application for hydrogen.
Renewable energy and land use
There is much talk in Australia of the potential for hydrogen exports to rival that of the LNG industry over time. This is not a ridiculous aspiration given Australia’s large land mass and large renewable energy (particularly solar) resource establishing Australia as a global renewable energy superpower. However, it is again helpful to convert this aspiration into numbers. If Australia were to export as much hydrogen by energy value as the LNG we exported in the year to June 2020 (33 million tonnes) we would need about eight times (2200TWh) the total electricity that was generated in Australia in 2019 (265TWh). If this energy was to be supplied by solar, we would need around 1000GW capacity which is around 75 times Australia’s installed solar capacity in 2019 or more than the installed solar capacity worldwide.
These sorts of numbers raise important social issues around the highest and best use of land and the scale of the energy distribution networks required to support an industry of this size. Already, there is growing community pressures around the impact of renewable energy generation in terms of aesthetics, noise, and detrimental impact on wildlife and this is likely to heighten materially at the sort of generation levels required to support a green hydrogen industry at scale. These tensions will only increase the lower the community buy-in around the full lifecycle benefits of green hydrogen.
With no shortage of green hydrogen aspirants looking for government support a key social question is the opportunity cost of directing subsidies towards green hydrogen relative to alternative uses. To reiterate, at current price points there is no natural demand market for green hydrogen. Demand will only be supported by government subsidies and, large amounts of it, for the foreseeable future. I have talked about prioritising public subsidy support to the refining and chemical industries to solve an existing carbon problem; a problem that doesn’t have a viable direct electrification alternative. I have also assessed alternative end-use cases for green hydrogen and discussed the risk of resource misallocation if subsidies are directed towards applications ultimately best suited to electrification.
The final area of focus is around the levels of resource allocation towards the energy transition versus other equally well needing community goods – whether it be health, housing or education. To bring to life the inherent trade-offs in public funding choices take a simple and real current example. Should governments be subsidising a heavy vehicle green hydrogen initiative or accelerating investment in the inland rail project to remove trucks completely off the interstate road. In an environment of constrained resources, these trade-offs are being made consciously or unconsciously by governments every day.
The pathway forward
The technical pathway forward is all focused about reducing the green premium and reducing hydrogen manufacturing costs from around $5-8/kg today to less than $2/kg and ideally less than $1.50/kg (of note $1.5/kg still represents around $12.5/Gj gas price or some 25-50% above today’s price). This improvement in cost competitiveness can only come through lower renewable electricity costs driven by lower prices for solar and wind energy and falling costs for electrolysers. The falling costs for electrolysers are based on scaled up production, technology learning rate, an increase in system size from 20 towards 100 MW, and associated operating efficiency improvements. As already noted, the least regrets focus of these improvements, and associated public funding, should be towards solving hydrogen’s carbon problem today when used as a feedstock into industry. This is in preference to opening new markets for hydrogen – many of which will ultimately be absorbed into the electrified economy. Unfortunately, current global spending patterns on hydrogen don’t necessarily reflect this view.
The technology pathway needs to be matched by a broader and more informed community discussion around the support, acceptance, and eventually demand for green hydrogen-based products. This will be matched by discussion around the relative merits (and opportunity cost) of a strongly government subsidised domestic and internationally traded hydrogen economy and hydrogen’s associated issues in relation to safety, water and land use. The outcomes of these discussions will naturally feed into a regulatory environment that will undoubtedly shape the green hydrogen’s final trajectory.
Green hydrogen is just another demand on clean renewable energy from wind and solar farms and associated energy storage systems. The full implications on land use of these low energy-density generating sources is still unfolding as is the relationship with communities who interact with them – albeit strains are already starting to show. In Europe alone, there are over 1000 different community-based coalitions have formed in a bid to arrest the further march of wind and solar farms across the countryside given the perceived impact on quality of life and on broader biodiversity sustainability. However, as these social and political issues with green hydrogen unfold against the backdrop of a zero carbon by 2050 ambition, it may have the unintended consequence of elevating viable energy alternatives that exhibit a different cost/benefit package. Don’t be surprised if energy-dense nuclear fission/fusion works its way up the leader board. There is plenty of good money (and science fiction precedence!) being directed at this potential outcome.
While there are many further nooks and crannies around green hydrogen that I could have explored, I trust that you have been able to navigate a logic spine that helps you be better informed, assists you to participate actively in important public dialogue, and importantly form your own views whether your children’s money through debt funded public subsidies is being directed in the right areas to deliver them the best sustainable future.
Andrew Rosengren, MD