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Explainer: How Is Green Hydrogen Emerging As a Renewable Answer?

A steel factory (photo by Billy Wilson) in sunset. Will hydrogen bring a new dawn?

In Brief

It's the oil majors' way out of pollutive profits. 

It's a cost-intensive, complex chemical process that requires heavy infrastructure. 

Hydrogen fits these definitions and more - this explainer sets out why some investors see it as a singularly compelling element. 

On February 18th, the Southern California Gas company submitted its plan to the California Public Utility Commission (CPUC) to develop a green hydrogen infrastructure system called Angeles Link, that would support the integration of renewable resources in  hard-to electrify industries and transportation in the region. Los Angeles’ collaboration with HyDeal LA (a pubic private consortium) intends to replace natural gas (used for heating and power generation) and gasoline and diesel (used in transportation) with hydrogen.
According to estimates by the group, the project will cost around $27 billion over 15 years to deploy gigawatts of solar and electrolyzer capacity, storage systems and pipelines for transport. Another project in Utah has estimated costs of $1 billion to produce green hydrogen and store in underground salt caverns, an energy equivalent equal to 150 GWh annually. HyStor, a hydrogen company has estimated costs of $3 billion to produce 110 million metric tons of hydrogen (annually) by electrolysis using solar and wind power. This concentration of billions raises a question. As global green hydrogen projects reach a combined notional capacity of 260 GW (as per Statista), what is green hydrogen and what are some of its cost implications?
Types (rainbow edition) of hydrogen
Hydrogen production is an energy-intensive process as hydrogen atoms exist with other atoms or in the compound form. Generating hydrogen (H2) involves breaking those bonds, usually at high temperature at above 1000 deg Celsius. The energy needed to produce a kilogram of hydrogen ranges between 20 MJ/Kg -150 MJ/Kg which is equivalent to electricity consumed by a typical US household per day (30-40 KWh of electricity) on average.
Today, 96% of the hydrogen gas used in industrial applications is either made from gasification of coal or steam reformation of natural gas. Gasification of coal refers to a process where coal is burnt with air at controlled temperatures, which produces hydrogen as one of the fuel gases, and is termed brown hydrogen. Another common process to produce hydrogen is steam reformation, which involves the reaction of steam and natural gas at 700-1000 degrees Celsius and high pressure. The hydrogen produced using natural gas is generally referred to as gray hydrogen. These feedstocks burn fossil fuels. When the emissions generated during the production of gray hydrogen are cut back using carbon capture and storage technologies (CCS), the hydrogen is referred to as blue hydrogen, According to a KPMG analysis, blue hydrogen  should become the most cost-effective “low-carbon” technology by 2030 and could be cost-competitive by 2040, driven by carbon prices.
Not every analysis concludes that the scale-up costs of hydrogen make it more compelling for infrastructure investment than more proven sources like wind, solar and hydropower. As the technology to produce blue hydrogen has been proven, the production cost is about $2.89 per kilogram of hydrogen at 90% capture rate of CO2 emissions. However, blue hydrogen does not capture  methane emissions that often leak into the atmosphere during natural gas extraction. Still, a Nature Conservancy analysis indicates that wind energy impacts 20 times more land area per unit of energy produced than natural gas production coupled with storage technologies. Considering that the hydrogen-based energy transition will take significant time, synergies exist between blue hydrogen development and green hydrogen.
Producing hydrogen in a useful format requires energy which is usually not “carbon-free”.  One of the techniques to generate carbon-free hydrogen is by a process called electrolysis, when electricity is used to break down water (H2O) into hydrogen and oxygen in an apparatus known as an electrolyzer. The electricity comes from renewable energy such as solar and wind. The hydrogen produced using this method is termed green hydrogen.  The hydrogen produced through electrolysis can be compressed and collected in tanks for later use.
Challenges to hydrogen deployment
Production of green hydrogen is expensive, and requires large amounts of renewable electricity at cheap costs. As per the estimates by International Energy Agency, green hydrogen costs between $3.0-$7.50 per kilogram of hydrogen compared to $0.90-$3.20 per kilogram of grey hydrogen at present. The high cost of green hydrogen includes the electrolyzer cost of $800 per kilowatt of capacity, an efficiency of 60% and electricity costs of $55 per megawatt-hour, with a capacity factor of 38% (running for 3200 hours). Bringing down the electrolyzer cost will be critical to scale green hydrogen production. Once it’s produced (ideally without burning carbon), green hydrogen can potentially substitute for fossil fuels. Some major opportunities for green hydrogen applications include powering fuel cell vehicles, electricity production through stored hydrogen, blending hydrogen with natural gas for residential heating as well as for steel making and other industrial applications.
At present, green hydrogen meets less than 0.1% of  global energy demand . This share could reach 12% by 2050, according to estimates by International Renewable Energy Alliance (IRENA). In the United States, over 10 million metric tons of hydrogen is used annually, mainly in in petroleum refining and ammonia production.
Given the availability of cheap coal and natural gas in oil-producing states, the production cost of grey hydrogen has been typically less than $2 per kilogram of hydrogen. The cost advantages of fossil fuels had been a limitation in the development of clean hydrogen, and studies posit carbon regulations, such as carbon pricing, for this transition. The international condemnation and human suffering that follow Russia’s invasion of Ukraine has set oil prices higher ($110 per barrel) in the energy market. Higher oil prices can be expected to improve the economics of low-carbon technologies, followed by policy regulations.
However, there are mixed opinions on the impacts of the war on energy transitions. Some advocates say strategies to cut dependence on Russian imports of oil could compare to  policy measures required to lower the emissions. On the other side, economic instability could encourage coal production in the short-run to meet global energy demand, since 80% of the demand is still fossil-based. Other than the massive capital costs and disincentives due to lower coal and oil prices, there are other challenges in scaling green hydrogen. Undeniably, hydrogen is less ideal as a fuel.
The low density of hydrogen makes it difficult to store and transport to markets where it is needed. Beyond that, using the existing natural gas infrastructure to blend hydrogen has its drawbacks. Because of varying chemical properties of hydrogen and natural gas, hydrogen at certain pressure and concentration can attack the metal structure, making it brittle and leading to leakage risks. Further, hydrogen burns like an explosion. Blending hydrogen above 25% presents equipment challenges, both in terms of engineering and safety. The intermittency of renewable electricity (solar and wind) needed to produce hydrogen also poses challenges to scaling hydrogen with manageable electrolyzer costs.

Will the other H become a hero, hype, or something else? (Photo by Mel Peffs)

Today's use cases of hydrogen 
The current economics of scaling green hydrogen relies on idealistic assumptions of high demand and lower renewable energy prices (less than $30 per megawatt hour) and it could take another decade for hydrogen to significantly contribute towards decarbonization. For most purposes, low-carbon hydrogen is not yet viable, but there are a range of hydrogen projects depending on market economics and geographic locations.
Forklifts operating on hydrogen fuel cells show faster refueling times and better performance at low charge levels than electric ones. Toyota Motor Corporation is using hydrogen fuel cells for material handling in its forklifts and recently partnered with ENEOS to test the viability of a hydrogen-based supply chain, from generating hydrogen to delivery to specialized applications. ENEOS is one of Japan’s leading energy companies with demonstrated expertise in hydrogen production and sale. The partnership aims to assess the viability of hydrogen as a clean energy source by seamlessly integrating its production, delivery, and use. That is, ENEOS will produce hydrogen from renewables and build refueling stations to ensure the supply of hydrogen is integrated with the demand, through Toyota’s fuel cell commercial vehicles and fuel cell power generators.
Other use-cases of hydrogen are cost-effective in specific locations with special economics. Generally, a significant part of the price difference between green hydrogen and gray hydrogen is the cost difference between power inputs. For example, Chile has rich renewable energy conditions, and half of the installed power production capacity is sourced from renewables. Given this, Chile aims to deploy an electrolysis capacity of 5 GW by 2025 and to produce the cheapest hydrogen by 2030. The alignment between below-average green hydrogen production costs and above-average alternatives cost will be crucial to match supply and demand.
Green hydrogen offers long-term potential in smelting, with special economics and government subsidies as enablers. Swedish firm Hybrit delivered the first batch of steel produced using hydrogen to Volvo, which intends to produce commercially viable trucks using green steel by 2026. ArcelorMittal has announced plans to retrofit two of the plants in Germany to produce low-carbon steel.
Role of government and policy
Given these challenges and opportunities, which other actors have a role to play in transitioning to greener hydrogen?
Many oil companies are pushing for green hydrogen development. Shell has teamed up with energy company Eneco to tap wind energy to deploy green hydrogen. BP conducted a feasibility study that confirms the financial feasibility of green hydrogen production in Australia. Green hydrogen production requires significant investments, and the big oil majors are uniquely positioned to provide those investments.
Along with multinationals facing the energy transition, public policymakers factor into the development of low-carbon technologies. A $100 million funding opportunity from the US Department of Energy (DOE), along with the existing Advanced Research Projects Agency-Energy (ARPA-E), will promote the development of cost-effective zero-emission hydrogen. In addition, funding from the Advanced Research Projects Agency-Climate (ARPA-C) can also encourage the development of innovative hydrogen-based solutions.
Opportunities for transition
In the current economic landscape for clean hydrogen, will blue hydrogen play a significant role in scaling the hydrogen economy? Since the technology for scaling blue hydrogen is already available, will the gradual application of hydrogen incentivize the new infrastructures to enable green hydrogen? In Hollywood and elsewhere, investors and inventors are waiting for the big reveal.