Switching industrial processes to sustainable solutions is costly and technically challenging.
There are a wide range of applications where the use of green hydrogen is either growing or has the potential for significant future demand. Green hydrogen can be used as a feedstock or a replacement fuel in a number of industries, including petroleum refining, ammonia for fertilizer production, food and pharmaceutical production, metals and steel manufacturing, and in nearly all forms of transportation, including air, ship and rail. Green hydrogen can also be converted to energy through engines, turbines, and fuel cells, or through hybrid approaches such as integrated combined cycle gasification and hydrogen turbines. Green hydrogen is one of the leading, lowest cost options for storing energy from renewables, as it can be stored onsite and electricity from clean hydrogen can be dispatched on demand over long durations and can extend through seasonal demand needs.
In order to facilitate the classification of these applications, four the possible use cases for clean hydrogen have be taken into account:
- Industrial processes – chemical hydrogen (feedstock)
Hydrogen has been used for decades in industrial processes such as oil refining, ammonia production and iron and steel production, however it is currently almost exclusively produced from unabated carbon-containing fossil fuels (so-called “grey hydrogen”). To give a sense of scale, approximately 6% of global natural gas production and 2% of global coal production is dedicated to grey hydrogen production (in each case, with the redundant CO2 from the fossil source largely being discharged into the atmosphere). It follows that green hydrogen, in direct substitution for the grey hydrogen currently produced, offers immediate potential to decarbonize existing chemical processes on a meaningful scale. This use case also clearly demonstrates how clean electricity alone cannot get us to net zero.
Substituting green hydrogen for grey hydrogen clearly avoids the cost of downstream adjustment. However, the counterfactual is grey hydrogen, the cost of which is itself a derivative of hydrocarbon (mostly methane) prices, but with the added costs of processing. Depending on prevailing natural gas prices, this may be one of the higher counterfactuals. However, on its own, this use case is unlikely to be big enough to justify the creation of a new clean hydrogen production sector at scale.
- Industrial processes – fuel switching (energy use)
Industrial customers may present another, more significant, use case for green hydrogen, through decarbonizing the energy (rather than the chemical) needs of industry. As a combustion fuel, hydrogen has different performance characteristics to electricity. For some industrial processes it will be simpler and more attractive to switch from other combustion fuels to green hydrogen than switching to electrical energy.
Until now, many industrial sectors have been protected from a requirement to fuel switch by exemptions within existing carbon incentives. As a result, governments have a degree of control over which decarbonization path they are encouraged to follow (and whether and when they do so). Taken overall, delivering the downstream adjustment required for this type of fuel switching, while requiring support, does not feel out of reach. However, the economics are perhaps less flattering than for other use cases, in that the alternative is usually methane or (untaxed) diesel, or power, each of which is likely to be considerably cheaper than clean hydrogen, at least initially.
Hydrogen has long been touted as a potential energy carrier for transportation via hydrogen fuel cell technology. In many markets, battery electric vehicles (“BEVs”) have clearly become established as the low carbon technology of choice (after conventional technology) for small or short distance private vehicles. The resources currently being invested in this technology by automotive manufacturers suggests that there would need to be momentous shifts in technology or incentives for the industry as a whole to pivot away from BEVs.
However, the inherent limits on charge capacity, and their relative weight, mean that BEVs are not a total solution for the transportation industry. For high usage vehicles such as taxis and delivery drivers, for heavy goods and farm/construction vehicles and for long distance vehicles such as trucks and buses, BEVs are not currently a particularly practical solution. Unless significant progress is made in overcoming these limitations in battery technology, fuel cell electric vehicles (“FCEVs”) will have a role to play.
In addition to road vehicles, hydrogen may also aid in the decarbonization of other forms of transport which are difficult to electrify, such as rail, maritime and aviation.
For a considerable portion of this sector, the counterfactual will be diesel, which may or may not be taxed depending on the jurisdiction and the particular user. Where it is taxed (or subject to carbon charging of any sort) this may result in better economics for specific projects at a local level compared to untaxed diesel or methane.
However, the downstream adjustment cost is significant, essentially requiring an entirely different vehicle (the design and production costs of which risk being entirely stranded if the market does not take off), as well as new refueling and distribution infrastructure.
This is a very clear “chicken or egg” problem: mass conversion of the transport sector (or parts of it) to hydrogen fuel cells requires major downstream changes in vehicles and infrastructure, which currently do not exist on any scale. However, the vehicles and infrastructure will not be developed or produced on a sufficiently widespread basis until there is a reliable supply. For this reason, some consider that transport applications are likely to follow the creation of hydrogen supply at scale for other use cases.
- Heat for buildings
Green hydrogen can be injected into existing gas networks to replace the use of natural gas for heating of business and domestic buildings. The injection of green hydrogen at low levels (between 10% and 20% in most jurisdictions) generally requires few modifications to existing gas grid infrastructure and could be a valuable transitional emissions reduction tool in the relatively short term. However, the tolerance for hydrogen blending differs from country to country.
The concentration of hydrogen above these upper limits, or pure hydrogen use for heating, would by contrast require significant changes to gas grid infrastructure and end-use applications (such as household appliances) and potentially the wholesale replacement or construction of new transmission and other infrastructure and end-use applications.
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