Article

The (Green) Hydrogen Economy is About to Take Off

With a 12X increase in the capacity of electrolyzers on its way over the next five years, hydrogen is poised to begin delivering on its promise.

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By Christian Roselund
December 2019

While standing on the iconic beaches of Santa Monica and Venice, California, it is sometimes possible to glimpse container ships on the horizon, near-mirages that provide scant evidence that just to the south lies one of the world’s largest hubs for international commerce. The Port of Los Angeles spreads across 43 miles of the city’s waterfront with giant cranes, stacks of containers, and ships coming in and out from all corners of the earth. It’s the busiest port in the nation, processing around 20 percent of the imports coming into the United States and providing employment for roughly a half million people.

The Port not only has an outsized role in our current economy, but is positioning itself in a new, emerging economy, based on the universe’s smallest molecule. In September 2018 the Port announced that it was set to receive $41 million from the California Air Resources Board to launch a pilot project involving ten trucks powered by hydrogen fuel cells and two refueling stations, as well as associated cargo handling equipment. The project is backed by some of the world’s largest companies, with Toyota supplying the fuel cell technology, Kenworth the truck design, and Shell the refueling stations.

But the City of Angels’ romance with hydrogen does not stop there. Earlier this month the Los Angeles Department of Water and Power (LADWP) announced plans to build an 840 megawatt power plant in Utah to replace the Intermountain Coal Plant that it operates. The new plant will initially run on a mixture of gas and hydrogen, and shift to a pure hydrogen mix no later than 2045. This is the date when the city is set to get 100 percent of its power from renewable sources.

Together, these two moves could make Los Angeles ground zero in North America for the use of “green” hydrogen. This term is used to specify electrolysis—the splitting of water into hydrogen and oxygen—that is powered by renewable energy.

Green hydrogen promises to be a lot of things—a solution for long-distance transport, a means to make carbon-free steel, and even a solution to integrating very high levels of renewable energy. But while we have been hearing about green hydrogen for a long time, it is about to get a lot more real. A recent report by market analytics firm Wood Mackenzie finds plans to build 3.2 gigawatts of electrolysis facilities from 2020 through 2025—12X what is online today.

And this is just the beginning. Two weeks ago, the European Commission issued a master plan that targets 80 gigawatts of hydrogen supply to Europe in the 2035–2040 timeframe, with around 20 gigawatts of that coming from Ukraine and another 20 gigawatts from North Africa. So while the hydrogen economy has long been relegated to the unspecified future, that future is now arriving on our doorstep.

A Brief History of the Future of Hydrogen

Hydrogen production is far from new; the first hydrogen-filled balloon was used for air travel in the 18th century, and this technology was widely used in the 19th and early 20th centuries. But while the Hindenburg Disaster in 1937 ended the dominance of hydrogen as a means of air travel, today there is a mature market for hydrogen with end uses in the oil, fertilizer, and chemical industries.

Most of the hydrogen that is produced for these uses is derived from either natural gas using the steam reforming process or other fossil fuels. However, the process of making hydrogen from water via electrolysis has been understood for more than 200 years, and electrolysis has been performed at an industrial scale since the 1920s using the alkaline process.

The need for hydrogen took on a new importance with the space race in the 1960s, and it was for this endeavor that two of the most important technologies for green hydrogen moved forward. Due to the use of caustic chemicals in the alkaline electrolysis process, a new way of splitting water into hydrogen and oxygen was needed, which led to the development of Proton Exchange Membrane (PEM) electrolysis. Additionally, to accommodate the need for electricity in space, new designs for fuel cells—devices which generate electricity without combustion using oxygen and a fuel such as hydrogen—were advanced.

Beyond the applications for space travel, the advantages of hydrogen over existing energy carriers for applications on Earth have been known for decades. A 2003 presentation by Rocky Mountain Institute Founder Amory Lovins describes hydrogen as a cleaner, safer, and cheaper fuel source than gasoline, and notes that this can allow localized energy production.

But despite the benefits for a variety of applications identified by Lovins and others, 15 years later nearly all the hydrogen made by humans is used in industrial applications such as making ammonia, petroleum refining, and chemical production. Only a small portion currently finds its way to direct reduction steelmaking.

But with the multiple gigawatts of hydrogen electrolysis facilities set to come online over the next few years, all of that is set to change. And as shown in an analysis by the International Renewable Energy Agency (IRENA), although alkaline systems are still being planned, PEM is the technology chosen for most of the new projects. Furthermore, the average size of new projects is growing rapidly. While a 6 megawatt plant in Mainz, Germany, is currently the world’s largest electrolyzer, IRENA puts 140 megawatts as the average size of the projects that are being planned to come online in 2023.

Long-Haul Hydrogen

All of this hydrogen electrolysis capacity coming online begs the question of what end uses it is intended for. One of the applications that has been explored is ground transportation, and hydrogen fuel cell electric vehicles (FCEVs) have certain advantages due to both the use of hydrogen as an energy carrier and fuel cell technology.

FCEVs are more efficient than gasoline- or diesel-powered internal combustion engine (ICE) vehicles and their only emission is water. Hydrogen is also less explosive than gasoline, and this potentially makes it safer. However, it has different properties that have to be accounted for, and IRENA notes several safety incidents at hydrogen fueling stations.

And when talking about the vehicles of the future, FCEVs have to compete against not only ICE vehicles but also electric vehicles based on lithium-ion battery technology, termed battery electric vehicles (BEVs). This presents a bigger challenge, as some of the advantages of FCEVs are also true of BEVs, which are able to convert a much larger portion of the energy stored in tanks or batteries than either FCEVs or internal combustion engines, as well as being safe and emissions-free in operation.

Despite the first FCEV being developed in the 1960s, BEVs are well ahead in the car market. Every major auto maker offers or is planning a BEV model; there were 2.5 million sold in 2018 alone. By contrast, FCEVs have mostly been deployed in pilot projects. Only a handful of automakers offer FCEVs, with a very small number of models available in limited markets, and global annual sales in the thousands, not millions.

But FCEVs have some advantages over BEVs, and these are particularly important when looking at longer distances and heavier loads. First, fuel cells and hydrogen tanks are lighter than lithium-ion batteries and have much higher energy densities. This gives an FCEV an advantage at a BEV’s weakest point: range. “With current battery technology, the weight of the battery required to move such a large truck limits it to urban operations,” notes EJ Klock-McCook, a principal in RMI’s Mobility Program. “It just can’t do long haul.”

By contrast, the much lighter FCEVs can offer increased range. The Toyota/Kenworth trucks to be deployed at the Port of Los Angeles have a range of over 300 miles, and Nikola is aiming to develop an FCEV truck with a range of 500–750 miles. However, there are an increasing number of trucks running on regional routes of lengths and durations that fall between local and long-haul, and the North American Council for Freight Efficiency (NACFE) describes BEVs as a viable technology for this sector.

Another advantage of FCEVs for trucking is refueling time, and here the rapid refueling available for hydrogen vehicles contrasts with the relatively slow charging time for BEVs. “If you are a logistics company where time is money, even a 30–40-minute charge on a high-speed charger is not the same thing as a 7-minute fill up,” notes Klock-McCook.

While a lot of freight currently runs on daytime routes which allows for overnight charging, this could be a bigger factor in the future. NACFE notes that there is an emerging trend towards “slip-seating,” where trucks run with different drivers for more than one shift per day. “We see higher utilization of the truck asset in the future, and that lowers the fuel time and makes the hydrogen truck more appropriate,” explains Mike Roeth, the executive director of NACFE and a principle in Rocky Mountain Institute’s Trucking Program.

A consensus among the experts surveyed for this article indicated that there is a potential role for FCEVs in long-haul trucking and potentially other segments where weight, distance, and refueling times are key considerations. However, these experts also unanimously signaled that BEVs are likely to increasingly dominate personal automobile sales.

But for both BEVs and FCEVs, there is the same question: where to refill/recharge. While electricity is widely available and EV charging networks have been rolled out nationwide, most public hydrogen refueling stations in the United States are located in California, Hawaii, and the Northeast, and these are much more limited.

Hydrogen for Industrial Processes

But FCEVs are far from the only applications where hydrogen could replace fossil fuels. One of the most significant questions of the energy transition is how to handle the hard-to-abate sectors, which include the industrial processes to make steel, cement, glass, and chemicals.

All of these sectors need high-temperature process heat, and all get this currently from burning fossil fuels. Hydrogen is one of the few technologies that can supply this heat without emissions, and holds particular promise for steelmaking through the direct reduction process (for more information on this process, see our article “Decarbonizing Cement and Steel”).

Cement and steel production alone currently account for 14 percent of energy-related emissions. And while switching to hydrogen for process heat will not completely decarbonize all of these sectors (the inherent process emissions in our current means of making cement are still an issue), hydrogen could be a significant part of decarbonization. The benefits could be enormous; Thomas Koch Blank, a principal in RMI’s Industry Program estimates that each kilogram of hydrogen reduces twice as much CO2 emissions if it is used for steelmaking as compared with using it for transport applications.

Low-carbon steel production could also be an enormous driver of hydrogen production. Koch Blank estimates that the hydrogen demand from a typical steel mill would be equivalent to roughly 100,000 hydrogen buses.

A Solution for Intermittency?

But perhaps the greatest promise for hydrogen is in the electricity sector. The most common charge leveled at renewable energy is that the sun doesn’t always shine and the wind doesn’t always blow. And while this variability can be somewhat mitigated by imports of power, balancing with dispatchable sources such as reservoir hydro, demand-side flexibility, and battery storage, there are situations where this is a thorny problem.

Those regions in northern latitudes with cold winters and little access to hydroelectric power pose a particular challenge. In an analysis by Wood Mackenzie of power supply and demand in the US Upper Midwest during the “polar vortex” last winter, the consultancy found a need for up to 40 hours of energy storage under 100 percent renewable energy scenarios, and multiple terawatt-hours of power deficits over that period.

This would be impractical to supply with the 4-hour lithium ion batteries which are being increasingly deployed on the US power grid, and the ideal solution to match this is a source of power that is both flexible and can store or quickly import enough fuel for days of continuous operation.

Modern gas turbines meet these technical criteria, and some scenarios that look at very high levels (80 percent or more on an annual basis) of wind and solar also envision a minor role for gas as backup. However, this electricity could also be generated either from hydrogen-powered steam turbines or fuel cells.

And not only could hydrogen theoretically supply power during shortfalls in production, but the excess generation from wind and solar that is inevitable during some hours under very high renewable energy scenarios could be used to make hydrogen. This in turn could reduce curtailment of these sources. As such, even if burned to power a turbine or used in a fuel cell, this cycle of making hydrogen with electricity and water and then producing electricity could act as a form of energy storage, and one that could operate on an hourly, daily, weekly, monthly, or even seasonal basis.

This ability to soak up excess generation at low to no costs is one of the significant benefits of hydrogen production, but here technology matters. PEM is able to ramp production more rapidly than the alkaline electrolysis process, and as such pairs better with the variable output of wind and solar. Such an application is being actively considered by industry trade group the Hydrogen Council, which foresees hydrogen production annually utilizing 250–300 terrawatt-hours of wind and solar that would otherwise be curtailed by 2030.

The Cost Issue

If this all sounds too good to be true, it is because we have not yet talked about some of the challenges to developing the hydrogen economy, including costs. Currently the cost of producing green hydrogen is not insignificant at between $2.50 and $6.80 per kilogram, according to an analysis by Bloomberg New Energy Finance (BNEF). However, this same report estimates that this will fall to $1.40 per kilogram by 2030. In terms of equivalent useful energy potential, this equates to roughly $61 per barrel of oil, or $11 per million BTU of natural gas.

The blunt figures of dollars and cents often obscure more telling details. Wood Mackenzie notes that one reason why hydrogen is currently so expensive is that due to the small size of the current market, all of the proprietary components in PEM electrolyzers are manufactured by hand. However, both BNEF and Wood Mackenzie expect automation to come with scale.

In its research, BNEF also notes that the cost of making hydrogen electrolysis equipment has been low in China and concludes that China could show Western manufacturers paths to cost reduction. All of this points to the potential of a virtuous cycle of falling costs, increased deployment, and increased manufacturing scale—with Asia in the lead—following the pattern of what has been seen in the solar PV industry.

Policy and Industry

Another parallel with other clean energy technologies is the interaction between policy and the market. And as a nascent technology, it should not be surprising that policy is playing a key role in deployment. Wood Mackenzie’s Gallagher states that the biggest driver of the current boom in global hydrogen deployment is the “beneficial, progressive, and supportive” policy environments in China, Germany, Japan, and South Korea.

This includes policies to deploy new fueling stations and to have a certain number of FCEVs on the road within a set timeframe, and China–which is home to one in seven of the FCEVs on the road–currently offers generous subsidies for fuel cell cars, trucks, and buses.

But along with the support from governments, the role of industry is also a factor. A number of the major companies, spanning multiple industries, are beginning to invest in hydrogen and come together to promote its use. At the 2017 World Economic Forum, 13 of the world’s largest companies—including such well-known brands as BMW, Honda, Hyundai, Kawasaki, Toyota, and Shell—came together to form the Hydrogen Council, a trade group to advance the hydrogen economy.

This group has since expanded to 60 members, and many of the biggest automakers, oil and gas companies, and industrial conglomerates sit on its steering committee. Among the members of the Hydrogen Council, Shell is particularly active on promoting hydrogen. In addition to deploying dozens of hydrogen fueling stations globally, with a particularly high concentration in Germany, the oil and gas major has produced a number of forward-looking reports on the potential of hydrogen.

Retrofits and Challenges

On the surface, many may wonder why oil and gas companies are so interested in an energy carrier which competes with petroleum. One factor may be that there will be a role for the kinds of infrastructure that oil and gas companies build and own in the hydrogen economy. Specifically, there will be a need to both store hydrogen and transport it to end uses including power plants, fuel-cell facilities, and filling stations, and this is all the more true the larger and more centralized that hydrogen electrolysis facilities become.

The existing oil and gas pipeline network can be used to move this hydrogen, but this is not without technical challenges. As the smallest molecule, hydrogen has a tendency to leak through materials commonly thought of as impermeable, including steel. Additionally, chemical reactions between various metals and hydrogen can make these materials more brittle.

There are several potential solutions to these issues. One is to coat pipelines to avoid hydrogen leakage and embrittlement, and the Hydrogen Council has proposed using materials such as polyethylene or fiber-reinforced polymers. Obviously this involves a retrofitting cost, and this will be different from region to region. RMI’s Thomas Koch Blank notes that in the United States this will require either upgrades or new pipelines, but notes that in the European Union, where the quality of steel used is higher, transition costs will be lower.

New pipelines are not prohibitively expensive, either. Saudi Aramco is currently budgeting US$0.20 per kilogram to bring hydrogen from the Middle East to Europe in new pipelines, and Koch Blank estimates that this is only a 10 percent markup on production costs. There is also the option of using carriers, potentially including liquid organic hydrogen carriers, to chemically store the hydrogen until it arrives at its destination.

There is an interim solution to introducing more hydrogen into existing systems by blending it with natural gas. The Hydrogen Council estimates that hydrogen can make up 5–20 percent of natural gas supply without major adaptions of infrastructure or appliances, and notes that hydrogen blends are currently used in Hawaii, Singapore and other locations that lack gas resources.

And while fuel cell technology is relatively mature, there is a question of the optimal design of turbines and other plant components to use hydrogen as a fuel source instead of natural gas. This work has been underway for some time; since 1970 Mitsubishi Hitachi Power Systems has been testing the performance of gas turbines with fuel mixes that contain 30–90 percent hydrogen. According to Power Magazine, key challenges have included limiting the amount of emissions of various nitrogen oxides without affecting the efficiency, but that backfiring and combustion oscillation due to higher flame speeds have also been issues.

The Road Ahead

Despite their larger size, many of the hydrogen electrolysis projects which are currently underway are still pilot in nature, with end uses in incumbent industries. Ben Gallagher, a subject matter expert with Wood Mackenzie’s Energy Transition practice, states that many are driven by demand from the fertilizer industry, which is trying to figure out how to use and store green hydrogen in anticipation of decarbonization mandates.

The same cannot be said of the refueling networks; over the next decade thousands of hydrogen refueling stations are planned, with China, the UK, Germany, California, and Japan being main destinations.

But regardless of who is building this infrastructure and why, what is clear is that over the next five years green hydrogen will go from being a dream to being an emerging part of the new energy ecosystem. There is enormous potential for decarbonization of major parts of the economy, including in some of the sectors that have traditionally proven the hardest to abate.

There are still big questions about scaling this rapidly. “Scale is the primary concern with the industry,” states Gallagher. “As we can see from the pipeline, there are finally large enough, stable volumes to become hopefully profitable and then invest in large-scale manufacturing.”

And while FCEV are a mature technology, other uses of hydrogen are new to the scale that is now being contemplated. Swedish steel-making venture Hybrit notes that no one has done hydrogen-based direct reduction steel making at the scale it is attempting, and there are also questions about how to adapt existing gas turbine designs to run on hydrogen.

However, the amount of investment that is going into hydrogen is enormous, and it is clear that some of the world’s largest companies are betting on hydrogen to play a major role in future energy systems. Even if there are hiccups, and if not every hydrogen project that is planned comes online in the timeline planned, it is inevitable that many will. We are entering a new world in energy, and hydrogen will inevitably be part of that.