Government policy will determine the success of the ramp-up of green hydrogen, and consequently the race to net zero, given the carbon-free fuel’s importance to the fight against climate change, according to the International Renewable Energy Agency (Irena).
Irena’s new report, Green Hydrogen Supply: A Guide to Policy Making, spells out why government support is needed to scale up renewable H2, as well as the policy options available to incentivise green hydrogen demand and support the deployment of electrolysers — the machines that convert water molecules into hydrogen and oxygen using an electric current.
“The key message from this report is that countries will be able to produce and transport a large enough supply of green hydrogen to affordably decarbonise the hard-to-abate sectors [see panel, below] and make the energy transition possible. But proper policies must be in place, and some policies need more urgent adoption,” the 64-page study says.
The report explains that the green hydrogen sector faces technological, economic, regulatory and environment barriers — “challenges that can be met through a wide range of supportive policies... policy makers [therefore] have a central role to play”.
“Policy makers can set targets for the growth of electrolyser capacity and green hydrogen production and consumption. They also can provide support for each stage of deployment — supporting electrolysers and electrolyser manufacturing capacity, ensuring a sufficient supply of renewable electricity, boosting demand for green hydrogen and its derivatives, and creating an infrastructure to store and transport hydrogen.”
The cost challenge
The main barrier to the deployment of green hydrogen is cost. “To be economically attractive, green hydrogen should reach cost parity with grey hydrogen [produced from unabated fossil gas] for sectors already using hydrogen, and with fossil fuels for uses not yet using decarbonised solutions,” the study explains.
As Irena points out, the emissions reductions required to meet the Paris Agreement would mostly come from renewable energy, energy efficiency and direct electrification of non-power energy sectors such as transport, heating and heavy industry.
“Still, direct electrification is difficult, if not impossible, in some sectors, such as steelmaking and other industrial processes, long-haul aviation and maritime shipping. These hard-to-abate sectors will require another form of zero-carbon energy, the most promising of which is green hydrogen.”
For more on the possible uses for green hydrogen, including why a consensus is growing against hydrogen use in cars and heating, see Recharge’s series of special reports here.
It puts the current cost of green hydrogen at $4-6/kg, compared to $1-2/kg for the grey variety.
Another major obstacle is a lack of clarity regarding future green H2 demand, which is preventing interesting parties from making final investment decisions. Companies will simply not plough millions of dollars into green hydrogen projects if they do not know if they call sell the H2 at a profit.
Setting electrolyser capacity targets, such as the EU’s plan for 40GW of installations by 2030, is a good place to start, Irena says, adding that electrolyser manufacturing can be helped to scale up through government grants, loans and financial incentives such as tax breaks.
Even if electrolyser and renewable electricity costs fall, green hydrogen could still be more expensive than grey for at least the next decade, the IEA warns, so governments should therefore work to close the price gap.
Options include adding taxes, levies or a carbon price to grey hydrogen — which emits nine to 12 tonnes of CO2 for every tonne of H2 produced. Or the cost of green H2 could be reduced by introducing the equivalent of the feed-in tariffs that kickstarted the wind and solar industries — ie, paying a supplier a set amount for every tonne of green hydrogen produced.
Auctions could also be held that pay developers a certain amount of money for every tonne of green hydrogen produced.
In regions where an emissions trading system exists, these could take the form of a “carbon contract for difference”, whereby hydrogen producers would receive a guaranteed amount (ie, a strike price) for every tonne of hydrogen produced, but the price the government pays would vary according to the carbon price.
So if the carbon price is not high enough to make green hydrogen cost-competitive with grey hydrogen, the government would pay the difference, ensuring that the developer always receives the agreed strike price. And if the strike price is higher than the carbon price, the producer would pay the difference back to the government.
It would also help if green hydrogen projects could participate in ancillary markets by providing flexibility services to the grid, due to the ability of electrolysers to quickly ramp up or down if supply is greater than demand or vice versa.
Another option to boost green hydrogen demand would be to introduce mandates for H2 blending in the fossil gas grid, although it points out that this would be limited to a maximum 20% hydrogen/80% fossil gas blend by volume due to safety issues. And due to the lower energy density of hydrogen compared to methane, this would only reduce emissions by about 7% — while increasing costs by 37% (assuming a green H2 cost of $4 per kg [$33/gigajoule] and a fossil gas price of $5 per gigajoule).
Once green hydrogen is close to cost parity with grey H2, governments could help boost market share through support/incentives for green shipping and trucking, seasonal storage, establishment of supply chains and hydrogen pipelines, as well as international trade agreements, the report adds.
Providing research-and-development funding to help reduce the cost of electrolysers, and for demonstration projects, would also help.
What about blue hydrogen?
As you might expect for an organisation devoted to the promotion and roll-out of renewable energy, the Irena report is fairly dismissive about blue hydrogen derived from natural gas or coal with carbon capture and storage (CCS), which is being heavily pushed by the oil & gas industry.
The study points out that CCS cannot capture all the emissions from grey hydrogen production, so blue H2 — a low-carbon solution — would not help countries reach their net-zero ambitions.
“Exporters of grey or blue hydrogen would then face the risk of stranded assets, which will be piled up to the stranded assets of the fossil fuel era,” the report states.
It adds that while blue H2 “would provide only partial partial decarbonisation, the presence of competitors reduces the opportunities for green hydrogen producers”.
The view from the renewables sector
Irena also published a second hydrogen report on Thursday, from its Coalition for Action forum of renewable-energy companies and organisations. The study, Decarbonising End-Use Sectors: Practical Insights on Green Hydrogen, has also been drawn up to advise governments on how to scale up renewable H2 and comes to very similar conclusions.
Perhaps the most striking differences between the two is that the Coalition report calls for governments to initially focus on replacing the grey hydrogen used by industry today with the green variety, and to avoid blending renewable H2 into natural-gas grids.
“National strategies and action plans should avoid carbon lock-in and stranded assets. In this respect, the blending of green hydrogen into existing natural gas networks should not be prioritised as it prolongs the use of high-carbon assets and displaces more efficient decarbonisation options for some applications.”
The Coalition report is also more explicit about the need for carbon pricing to create a level playing field, and advises governments to set green product mandates or sectoral targets for industries such as steel, cement and fertilisers.
The Coalition's nine “key takeaways and recommendations” are:
- Act now to develop national strategies and plans for green hydrogen;
- Increase ambitions in renewable energy deployment;
- Develop globally recognised standards and supporting certification schemes for green hydrogen;
- Prioritise use of green hydrogen in hard-to-abate sectors where no cheaper decarbonisation options exist and avoid applications to carbon lock-in;
- Implement financial policies and incentives to accelerate early-stage innovation and deployment of green hydrogen technologies;
- Stimulate demand for green hydrogen through carbon pricing and other regulatory measures;
- Consider how existing regulation of electricity grid fees and taxation affect opportunities for green hydrogen production;
- Promote development of green hydrogen hubs and valleys (ie, co-locating hydrogen production, storage, distribution and consumption in one geographic area);
- Strengthen international co-operation and partnerships to accelerate green hydrogen uptake.
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