Why has the green hydrogen hype faded?

Green hydrogen was the buzzword on everyone’s lips a few years ago, but the initial hype seems to have died down as the industry takes time to build capacity and overcome production and transportation hurdles. Several countries have set ambitious green hydrogen production targets for the coming decades as they strive to decarbonize hard-to-mitigate industries. However, as governments and the private sector increase investment in green hydrogen, the sector needs time to develop. Researchers are constantly looking for ways to reduce production costs, which are currently high, as well as overcome transportation restrictions. While there are high hopes for the development of a global green hydrogen market, it could be a decade or more before we see greater production and use of the clean fuel.

Green hydrogen can be produced cleanly using wind or solar energy to power electrolysis, which splits hydrogen and water. Unlike conventional hydrogen, it does not require the use of fossil fuels to power the production process. As investment in green hydrogen continues to grow, with governments around the world pushing for a green transition and the decarbonization of industries that are hard to abate, the green hydrogen market is expected to reach $1.4 trillion by 2050. Outlook 2023 by Deloitte estimated that green hydrogen could become competitive in less than a decade, supporting up to 2 million jobs globally each year between 2030 and 2050. The main market driver will be the decarbonisation of industries such as steel production, chemicals, aviation and shipping. Deloitte expects Asia to hold around 55% of the green hydrogen market by 2030, dominated by China, India and Indonesia.

Green hydrogen is looking an increasingly attractive option for industries that generate high greenhouse gas emissions and cannot rely on clean electricity to reduce emissions. Clean hydrogen could help reduce cumulative carbon emissions by up to 85 gigatons by 2050, equivalent to more than twice global CO2 emissions in 2021. However, Deloitte estimated that more than 9 trillion dollars of cumulative investment in the global clean hydrogen supply chain to help achieve the net-zero vision by 2050.

While there is significant potential for the growth of the global green hydrogen industry, there is still a long way to go before we see widespread production and uptake of the energy source. Governments and energy companies are investing heavily in developing green hydrogen technologies to increase global production capacity. The EU aims to produce 10 million metric tons of carbon-free hydrogen by the end of the decade and import roughly the same amount. In the US, President Biden has invested $8 billion in creating “hydrogen nodes,” business groups that produce and use the fuel. However, to date, the green hydrogen industry has attracted few customers.

Most of the current purchase agreements for green hydrogen are non-binding, meaning buyers can opt out at any time. This means that much of the impressive green hydrogen pipeline may never be built. Only about 12% of “low-carbon hydrogen facilities” have agreements with customers to purchase fuel. BloombergNEF analyst Martin Tengler explained: “No sane project developer will start producing hydrogen without a buyer for it, and no sane banker will lend money to a project developer without reasonable confidence that someone will buy the hydrogen “.

Green hydrogen is seen as central to the global green transition, as potentially the only means of decarbonizing steel, shipping and other hard-to-mitigate industries that cannot rely on clean electricity alone. In fact, we may use up to 390 million tons of hydrogen per year globally by 2050. However, the transition from fossil fuels or conventional hydrogen to green hydrogen is not so simple.

Companies wanting to switch to green hydrogen would need to invest in expensive equipment, and the cost of producing clean hydrogen remains four times higher than grey/blue hydrogen, which is based on natural gas. Furthermore, developing the infrastructure needed to transport hydrogen, such as new or adapted pipelines, is not so simple. Hydrogen must be supercooled for transport, which means compressing it or transporting it in another form, such as ammonia, which combines hydrogen with nitrogen. While pipeline construction can help connect domestic customers to plants, it is more complicated to reach international customers without well-established regional transportation links.

There is significant potential for the development of the green hydrogen industry, with many energy experts seeing the clean fuel as the only possible way to decarbonize heavy industries. However, to accelerate market development, private companies around the world need to establish significant agreements with manufacturers to ensure that their projects can get off the ground. Without greater investment in the sector and without guarantees of green hydrogen uptake in several major industries, the sector could stagnate, which would harm decarbonisation goals in the coming decades.

By Felicity Bradstock for Oilprice.com

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