From walk-on part to starring role?
Today, hydrogen only has a walk-on part as an energy source, accounting for less than five per cent of the global mix. But experts believe this versatile gas could be a star in the transition to a less carbon-intensive economy due to the flexibility of its application to activities that are hard to electrify, such as powering trucks, heating homes and providing energy for heavy industry. It could even be a fuel for aeroplanes.
Hydrogen has the potential to be a completely clean fuel, producing zero carbon emissions. Hydrogen fuel cell technology harnesses a chemical reaction with oxygen, creating a current that can power cars – and its only exhaust is water. The gas can also store energy and use existing infrastructure like gas pipelines to help to decarbonise some of the most polluting industrial processes, like steelmaking.
The biggest hurdles to greater use of hydrogen are how it is made and what it costs. Both challenges reflect the fact that hydrogen is a secondary fuel, made in processes that require other forms of energy.
Grey, blue and green
Right now, more than 99 per cent of pure hydrogen is termed ‘grey’ because it is generated by carbon-intensive processes. Steam methane reforming, which subjects a methane source to steam heated to temperatures of 700°C to 1,000°C to produce hydrogen, accounts for three-quarters of production.1 Emissions from producing grey hydrogen are greater than those from burning coal or natural gas.
Hydrogen can also be produced using electrolysis, in which electricity splits water into hydrogen and oxygen.2 But this also results in carbon emissions unless all the electricity used in the process comes from renewable energy sources.
Steam reforming is also used in the production of ‘blue’ hydrogen, but the carbon emissions are captured and stored underground. ‘Green’ hydrogen, produced using water electrolysis powered entirely by renewable energy, is the only type that creates zero emissions.
Towards cheaper hydrogen
Grey hydrogen is much cheaper to produce than its blue or green counterparts – for now.
In 2019, producing a kilogram of green cost more than twice as much as same amount of grey. But the cost of producing green and blue hydrogen is falling fast as electrolysis equipment and renewable energy itself become cheaper.
As the number of electrolyser projects increases, HSBC expects economies of scale to drive capital expenditure costs for these projects from USD1,000 per kilowatt of electricity in 2019 to USD400/kW in 2040.3 BoombergNEF, a consultancy, expects that these falling costs will push the price of green hydrogen down to USD1.5 to USD 3 a kilogram by 2050, which is about the same price as grey hydrogen today.
Electricity generated from offshore wind costs more per unit than solar or onshore wind, but HSBC expects that gap to close as larger turbines make offshore wind electricity cheaper to produce. As its cost falls, it will make more sense to use offshore wind for hydrogen production because of its higher load factor (or how much energy is used in a period of time versus the maximum possible).
Putting hydrogen to work
Battery-powered electric cars have a huge head-start over hydrogen fuel cell vehicles: 2.3 million electric cars were sold in 2019 versus a few thousand hydrogen cars.4
But HSBC sees potential for hydrogen to power heavy trucks on long-distance routes. Hydrogen’s greater energy density means fuel cells can weigh as much as 1.5 tonnes less than electric batteries for a large truck, giving the hydrogen-powered vehicle greater range.
Hydrogen-powered trucks can also refuel more quickly than battery-powered ones. New hydrogen re-fuelling infrastructure would need to be built, but this only needs to be on main road arteries that account for around five per cent of a road system. Europe aims to have 45,000 fuel cell electric trucks by 2030 and 450,000 by 2040.
Hydrogen can complement electricity generation from offshore wind farms by enabling off-peak energy storage – by keeping the gas in underground caverns.
And more demand from sectors that need to create high temperatures for industrial processes – like steel, ceramics and glass – could encourage greater production of hydrogen from renewable energy sources.
Establishing industrial clusters around green hydrogen production facilities could catalyse increased application of the gas in different sectors. At the same time, an international hydrogen market could create greater supply at lower by producing in cheaper locations and using existing infrastructure for transport.
Support from policymakers
HSBC believes policy support is essential to driving investment in the hydrogen sector. There is growing commitment from policymakers to develop green hydrogen, particularly in the European Union, which sees hydrogen as a key driver for the post Covid-19 recovery. Policies to support zero-emissions transportation in California should also benefit hydrogen.
Rising consumption driving lower prices, combined with maturing infrastructure and backing from governments and regulators, could give hydrogen the boost it needs to be taken seriously by investors and developers alike. As global sentiment supporting decarbonisation increases, we see this versatile and abundant gas taking centre stage as a new sustainable energy star.