Once upon a time, hydrogen was seen as the next big breakthrough in the energy sector. Now, however, even with subsidies from European and American governments, the cost of hydrogen projects is rising, and the growth of hydrogen energy utilization is much slower than expected.
Demand for low-carbon hydrogen is forecast to grow from almost zero to 800 million tonnes per year (Mtpa) by 2050, accounting for about 20% of the global net-zero energy mix. At this trajectory, the world will need about 70Mtpa of green hydrogen by 2030.
As a result, a large number of projects have been launched, and the government has promised generous subsidies. However, media surveys have pointed out that the cost of the first hydrogen projects in Europe has even doubled, and subsidies cannot provide the power. Hydrogen is growing much slower than expected, and the 2030 target now looks almost unattainable.
According to the analysis, the problem is not only that scaling up hydrogen production is more difficult than expected, but also the growing uncertainty about the actual use of hydrogen energy. Today, electricity-based technologies, including electric heating batteries and heat pumps, have rapidly developed into options other than hydrogen. And if these power technologies continue to develop, the role of hydrogen in the 2050 carbon zero-carbon emission target may only be close to 350Mtpa, less than half of the most optimistic estimates. In other words, while hydrogen is still playing a role in the goal of carbon zero, the vision of counting on hydrogen to be the main force in achieving carbon emission zero at a low cost has been significantly reduced.
The production capacity is small and the cost is soaring and cannot compete with traditional energy sources
The first problem with green hydrogen is that production is very limited.
The hydrogen currently used is mainly so-called "grey" hydrogen, which is extracted from natural gas (CH4) while emitting carbon. About 100Mtpa of this hydrogen is consumed annually, mainly in refineries and fertilizer plants. The only green hydrogen projects currently in operation are demonstration or pilot power plants, with a total annual production of less than 0.1 Mtpa, which is less than one-fifth of the expected output in 2022. While developers are still planning projects to increase potential capacity to 45Mtpa by 2030, investors are reluctant to invest and few projects can be implemented.
According to the analysis, the delay in the acceleration of green hydrogen is to be expected, in part because expectations for this fuel are too high and somewhat out of reality. In addition to this, the first wave of projects was hampered by rising costs. According to McKinsey's Markus Wilthaner, the cost of an electrolytic plant can be as high as $2,000 per kilowatt today, with large variations between projects depending on the configuration. This is 65% higher than the Hydrogen Council expects developers to pay so far.
Coupled with higher financing costs, the funding requirements for projects have increased significantly. For example, the 30MW project at the Bad Lauchstädt Energy Park in Germany will require an investment of €210 million, 50% higher than initially anticipated. In many parts of the world, the green electricity needed to power electrolyzers is also more expensive than expected. All of this is expected to cost between $4.50 and $6.50 per kilogram to produce in the short term. In contrast, the most optimistic estimates had foreseen costs falling to about US$3/kg over the same time.
Considering that 1 kilogram of hydrogen contains 33.3 kWh of energy, it is equivalent to approximately US$216 (200 euros) per megawatt hour. And that's just the cost of production. If the project requires transportation and storage, the cost can add up quickly. In comparison, the cost of natural gas in the United States is $8 per megawatt hour and around 30 euros/MWh in Europe. The cost of grey hydrogen could be €80 per megawatt hour, including the carbon price for its emissions. This means that the "green premium" for hydrogen – the additional cost of switching to green for existing hydrogen consumers such as refineries and fertiliser producers – is €120 per MWh. Almost no one can afford such a hydrogen price.
The strong development of power technology The advantages of hydrogen energy may be lost
In addition to capacity and cost issues, the outlook for other uses of hydrogen looks volatile. For example, hydrogen is not an energy-efficient option for powering cars, while heat pumps offer a more efficient option for heating homes.
The problem is that even in areas where hydrogen was thought to have some advantages, such as transport and some industrial sectors, opportunities seem to be shrinking. Advances in power-based technologies threaten the potential role of hydrogen in industrial thermal energy. Currently, hydrogen's role in industry is being threatened by the development of electrothermal batteries, a technology that uses electricity to heat bricks and rocks, which can then be used to provide industrial high-temperature heat.
Hydrogen trucking also looks more challenging, given the improvements in battery technology and the difficulty of providing hydrogen refueling infrastructure. The advantage of hydrogen fuel in transportation would have been that it could store more energy in a given weight than batteries, making it more suitable for vehicles that need to carry large amounts of energy, such as airplanes, boats, and large trucks. Batteries have become the preferred solution for small vehicles, and as battery technology improves, the load capacity and range of electric trucks will also increase, further reducing the benefits of hydrogen energy. At the same time, as the number of application scenarios decreases, the cost and complexity of hydrogen refueling station infrastructure deployment also increases significantly.
Can hydrogen come back to life?
While some of the advantages of hydrogen are being lost, some bottlenecks in power routes have also emerged, such as the grid being too congested, according to the analysis. And in other sectors, hydrogen remains the most viable option for decarbonisation, including those currently using grey hydrogen to produce ammonia, fertilizers, and more, which could require 60-85 million tonnes (Mtpa) of green hydrogen by 2050. In addition, a further 120 million tonnes of hydrogen may be used in industries that need to use hydrogen as a feedstock rather than just providing heat, such as steel manufacturing.
Therefore, hydrogen demand reaching 350 million tonnes by 2050 may be a reasonable estimate. In addition, as the role of renewable electricity in the energy system increases, the need for long-term storage of energy tends to increase, opening the door for hydrogen to play a larger role in stabilizing the grid.
And even with a potential future market of 350 megatons, which is more than three times as much hydrogen as we use today and 400 times as much as all low-carbon hydrogen in the world, achieving this goal is still ambitious.
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