Big dreams meet hard realities
If success was driven by good intentions and the words written about them, clean hydrogen (ideally ‘green’, otherwise ‘blue’) would be well on the way to becoming a core player in global energy decarbonisation.
On my laptop is a folder packed with hydrogen strategies and roadmaps. Some are from countries, most recently Australia. Some are from regions or states like California. Some are from windswept, wave-bashed island groups such as the Orkneys, off the northern coast of Scotland. Even individual cities are getting in on the act: Manchester (the UK one) aims to publish a hydrogen strategy early in 2020.
It’s fair to say that hydrogen has ‘momentum’; reaching beyond report-writers and into the offices of a diverse mix of key energy industry stakeholders: policymakers, oil and gas companies, energy grid operators, technology developers and more.
However ‘energy’ covers a diverse range of market segments and hydrogen’s momentum isn’t universal. While in the last week a balloonist drove nearly 800km across France in a Hyundai Nexo, a few weeks earlier one-time hydrogen champion Honda put its fuel cell vehicle plans on hold to focus instead on battery alternatives (BEVs).
Momentum (like good intentions) is no guarantee of success, if it mainly exists on paper or in conference rooms.
What hydrogen needs, and quickly, is what military types might refer to as ‘boots on the ground’: real projects addressing hard-to-solve problems and able to build deployment at scale.
All those strategy documents you read hang on assumptions of cost reduction driven by the technology learning curves that growth provides. Without learning curves, the multitude of proposed hydrogen business cases risk remaining always in the future. Grandiose talk of ‘hydrogen economies’, with entire energy systems restructured to create them, risk holding the industry back. After all, the term hydrogen economy was first coined in 1970, when an oil crisis loomed. Nearly fifty years later, where is it? Fusion power anyone?
Of course policy support will be needed to provide a crucial leg up for some of these early deployments and drive the earliest growth. With political appetites for big, open-ended public subsidies diminished though, there’s also a clear onus on the hydrogen sector to choose its battles carefully and show policymakers some quick wins.
Choosing the right battles
To achieve these quick wins, clean hydrogen might need to accept the loss of some battles now in order to still be involved in the low carbon war in future.
So, at the risk of enraging some readers, let’s start with transport; specifically cars and other ‘light’ vehicles. As the majority of car manufacturers seem to have concluded, this is likely not the best sector in which to realise rapid hydrogen scale-up.
Things may change in future, but for now the fact is that battery cars (BEVs) are currently cheaper to buy, cheaper to fill and cheaper to maintain. Lithium-ion batteries prices have plunged 85% since 2010 and are still falling as Gigafactory capacities grow rapidly. New models of BEV are being announced almost every week, with better batteries and longer ranges; more than enough for the overwhelming majority of real usage. Charging points are springing up ever more widely, albeit under-utilised because most drivers find it more convenient to charge at home than to visit a ‘filling station’ anyway.
This is not to say BEVs are without criticism; the above are simply observations on comparative advantage and real, on-the-ground momentum. Battery vehicles are an expanding, accelerating snowball that you’d be brave to stand in front of. So don’t try to be a battery alternative. Hydrogen will be better served seeking growth elsewhere in the short-term, in market segments where it has clearer advantages and easier deployment.
The hydrogen supply chain can be broadly broken down into three parts: producing the hydrogen; moving it to where it’s needed (let’s call that ‘distribution’); and end-use.
One of the problems in trying to compete in the light vehicle space is that all three of these present considerable barriers to entry. There need to be cost-competitive fuel-cell vehicles. There needs to be a comprehensive distribution infrastructure to allow for ubiquitous filling stations. There needs to be sufficient hydrogen production to fulfil demand and be cost-competitive with alternative fuels (or electricity).
This, in a nutshell, also reflects the wide-scale ‘hydrogen economy’ problem.
In the short-term, it will be easier to grow by focusing on applications and deployment scenarios where one or more of these barriers to entry are lower, or removed.
A change of colour
The most obvious barrier to avoid or minimise is the distribution part. We can do that by producing hydrogen on the same site it’ll be used, by focusing on small geographic areas or by leveraging existing infrastructures.
That’s one reason why, at present, I’m less excited by fuel cell cars than by steps by Thyssenkrupp and a number of other steelmakers who are testing hydrogen as a replacement for coal in the steel-making process. Or by Shell and others introducing green hydrogen into existing refinery facilities. Where space can be found to produce hydrogen onsite, these industrial applications provide infrastructure-lite, distribution-free opportunities.
Refining in particular minimises hydrogen’s market entry challenges by focusing on an application where hydrogen is already used; simply swapping how it is produced (to ‘green’ rather than ‘grey’).
Why try to compete in new applications, when ‘drop-in’ ones already exist?
Since scale is the goal, bear in mind that this existing hydrogen market is not small. The International Energy Agency estimate that the carbon footprint for existing hydrogen usage – mainly in refineries and ammonia production – is greater than that of the United Kingdom and Indonesia combined. By all means read that last sentence again – it isn’t a misprint.
In terms of decarbonisation then, hydrogen substitution in those sectors is a very low hanging fruit opportunity indeed. It’s also a big enough market to drive substantial capacity expansion for electrolyser suppliers. Falling technology costs will then ultimately benefit other market segments in future.
In industry, it’s also worth bearing in mind that electrolysis doesn’t just produce hydrogen. It produces oxygen too, a gas with numerous uses in steelmaking and other metals refining and fabrication processes, in chemicals, pharmaceuticals, petroleum processing and more. So don’t discount the value of that ‘by-product’ when thinking about the business case.
Don’t go far
In terms of limiting the geographical scope of hydrogen infrastructure, the Australian strategy notably proposes focus on creating “hydrogen hubs – clusters of large-scale demand” rather than far-reaching national infrastructure. It also hopes to “promote synergies from sector coupling”.
Luckily it has somewhere it can already look to for lessons in doing both: The Orkneys in Scotland. Here renewable power that would otherwise be curtailed is being used to produce green hydrogen for use in a number of applications: fuel cells for electricity, boilers for heat, filling stations for range-extending a fleet of vans and – soon – an inter-island ferry.
The key here is not just limited geographical scale, but Orkney’s specific circumstance in terms of electricity supply. It has abundant wind, wave and tidal resource that already produces 30-40% more clean electricity supply than it has demand. Crucially for the hydrogen case, Orkney’s ability to shift that excess power is stymied by poor connectivity: a limited capacity interconnector to the mainland. The case for hydrogen is helped by the fact that, if that excess is not to be curtailed, the alternative is problematic and costly too: new undersea cables are not cheap!
Seen from a renewable electricity perspective, conversion to hydrogen is fundamentally a way to introduce a ‘stock-based’ capability into what is otherwise a ‘flow-based’ system (where supply and demand must balance in real time). However it comes with a big efficiency penalty and in well-connected and larger systems, the options for flow-based balancing are often numerous. The need for hydrogen as a balancing mechanism lies years into the future.
It makes sense then to look in the shorter term for markets where connectivity is poor. These could be islands in the sea or rural, remote areas ‘islanded’ from main grids because of poor or non-existent grid connection.
If you can combine this with specific hydrogen industrial usages as mentioned earlier, then even better. Thus another hydrogen roadmap I read this week – focused on Italy – proposed Sicily as a sensible focal point for early efforts. It has good renewable resources, limited interconnection with the rest of Italian power grid and the existence of multiple local industries including refineries.
It is this kind of local thinking – focused on easier wins, quicker deployments and comparative advantages – that is far likelier to build scale for clean hydrogen at a quicker rate.
Even in transport, while mass-market hydrogen cars run up against the substantial barrier that is the widespread deployment of hydrogen filling stations, less glamorous applications such as fork-lift trucks in warehouses can provide market opportunity through ‘localising’ the infrastructure: combining a high usage application with one centralised ‘filling station’ requirement.
Don’t build, re-use
Some projects, such as ‘H21’ in the north of England, do propose more region-wide hydrogen approaches. To overcome the problem of hydrogen distribution over wider areas, in the early years they’ll blend hydrogen into existing natural gas networks. A number of projects in different countries are investigating what percentages can easily be blended, to minimise impact and cost on both pipelines and end-use appliances.
Blending may not be technologically exciting – and invites criticism that it perpetuates natural gas usage. But in terms of a quick route to scale, it once again represents a sizeable volume opportunity. By my own rough calculations, if the UK replaced just 7-8% of its natural gas usage with ‘green’ hydrogen (on an energy basis), that would require as much as the entire current global production of green hydrogen.
The acorn before the oak tree
I’ve highlighted just a very few ways in which thinking ‘small’ provides easier routes to growth. Of course there are plenty of other approaches out there which might ease initial cases for hydrogen deployment: utilising ‘waste’ heat to overcome efficiency penalties, combining with offshore wind to offset expensive offshore cable connections, and so on.
There are also, of course, lots of market segments in which hydrogen may face little credible competition in an eventual roadmap to zero-emissions: long-haul aviation, seasonal storage, long-distance maritime and more. There’s nothing wrong with setting out visions for all of these. To get there though, the hydrogen sector must first drive down costs; and to do so it must start deploying hardware.
So in the short-term it will be wise to ignore some big-but-distant opportunities and to forego some competitive battles. The focus should be on market segments which provide easier wins, not least for policymakers whose support will be needed.
That means identifying lower barriers to entry, in particular scenarios with ‘infrastructure-light’ rollout requirements. Sometimes thinking small can be the best route to getting big.
References & further reading:
The links below include a selection of the sources used in researching this article, plus a useful resource for readers wanting to find out more about the issues discussed:
- International Energy Agency (IEA) market statistics on hydrogen
- Honda’s view of battery, fuel cell and diesel cars
- Thyssenkrupp launches tests of hydrogen in steel-making
- One of Shell’s projects to replace grey with green hydrogen in refining
- Australia’s hydrogen strategy
- The potential for hydrogen in Italy
- The Orkney’s world-leading hydrogen deployment
- Hydrogen’s utilisation in forklifts in warehouses
- Data on the UK’s natural gas consumption
- The H21 project to decarbonise natural gas grids in northern England