The quest for clean, sustainable energy is undoubtedly one of the greatest challenges and opportunities of our time. As we at CASTOR+PARTNERS navigate the complexities of the energy transition with our clients, hydrogen continues to spark both excitement and scrutiny. Recently, the team at Fuller Treacy Money highlighted some crucial considerations in their article “The Quest For Economically Viable Hydrogen,” which has inspired this post. Let’s dive into a frank discussion about the current state of play, the hurdles we face, and the potential pathways to a hydrogen-powered future.

Top Takeaways from this Article:

• Hydrogen as a fuel offers significant advantages, including zero carbon emissions at the point of use, quick refuelling capabilities and high energy intensity. However, the high costs of producing it and the logistical challenges of transporting it present substantial hurdles to widespread adoption.
  
• Government support and policy are critical for developing a hydrogen economy. Tax credits and subsidies can incentivize production, but political support may be inconsistent, and the long term viability of this support is uncertain.
  
• The path to a hydrogen economy requires innovative technologies and a focus on solutions such as advanced electrolyzers, ammonia conversion for transportation and exploring naturally occurring hydrogen deposits.

The Promise and the Peril of Hydrogen

Hydrogen, as a fuel, has undeniable appeal. Its most significant advantage is that it does not produce carbon emissions at the point of use. It also boasts the potential for quick refuelling and high energy intensity. However, the reality of using hydrogen is a bit more complex. The cost of producing it and the logistical challenges in transporting it are considerable hurdles. As the article from Fuller Treacy Money points out, current costs can negate hydrogen’s other advantages.

One of the major issues is that even “green” hydrogen, produced through electrolysis using renewable energy, is expensive. The process of splitting water molecules into hydrogen and oxygen, while clean, requires significant energy and specialized infrastructure. As such, the cost of production needs to fall to competitive levels compared to existing fuels before hydrogen becomes a mass market product.

Furthermore, the practicalities of handling hydrogen are far from simple. As a light gas, it’s difficult to contain, necessitating compression or cryogenic freezing to convert it to a liquid form. This is prohibitively difficult which has led to the conversion of hydrogen to ammonia for easier storage and transport.

The Importance of a Supportive Policy

Government support is critical to the development of the hydrogen economy. Brazil has recently announced support for new production hubs for green hydrogen. In the United States, the Treasury Department has recently revised rules for hydrogen production tax credits, which range from $0.60-$3 per kilogram, based on the level of carbon emissions from the project. This is part of the Inflation Reduction Act, and is intended to bring down the price of clean hydrogen by incentivizing companies to scale up production infrastructure. These credits are available to nuclear power and natural gas producers, as well as those using renewable energy sources.

However, the inconsistency of political support can be a problem for such projects, since it’s unlikely to be reliable beyond the current administration.

Blue vs. Green Hydrogen: A Current Debate

While the long-term goal is undoubtedly green hydrogen, produced from renewable sources, the short-term picture is more complex. The US is consolidating its position as a blue-focused hydrogen market, with more than 1.5 million metric tons per annum of blue hydrogen capacity expected to reach final investment decision (FID) in 2025. Blue hydrogen, produced from natural gas with carbon capture, is currently a more economically viable option, although it doesn’t offer the same long-term sustainability benefits. Some argue that the 45Q tax credit in the US will remain in place due to strong support from the oil and gas lobby, which will see the US emerge as the world’s leading blue hydrogen producer.

Several companies are focusing on the production of green hydrogen including Plug Power, which is a manufacturer of fuel cells and electrolyzers and provides storage and transportation solutions. Plug Power also received a commitment from the U.S. Department of Energy for $1.6 billion in loans for clean hydrogen development.

The Role of Technology and Innovation

To make hydrogen truly viable, we need more than just government subsidies. The focus should be on the innovative use of technology and new energy sources.

• Electrolyzer Technology: Advanced electrolyzer plants are essential for separating hydrogen from water using renewable energy. This process requires specialized pumps that can handle ultra-pure water and pressurize the hydrogen. Chinese electrolyzer manufacturers are expected to increase competition globally, which may help to reduce costs.
• Ammonia Conversion: The conversion of hydrogen into ammonia is emerging as an efficient solution for transporting energy across vast distances. Ammonia can be shipped using existing infrastructure, and then split back into hydrogen at its destination.
• Natural Hydrogen: There is some speculation that naturally occurring hydrogen deposits, sometimes called “white hydrogen”, could become a significant source in the future. While research is ongoing, this could be a potential game changer, though the timeline stretches into decades.

The Significance of Data Centres and a Reliable Energy Supply

The growth of artificial intelligence and the associated data centres is also impacting the energy landscape. These data centres require a reliable and consistent energy supply. Some are now directly connected to natural gas pipelines and produce hydrogen onsite. While this is not “green hydrogen,” it can significantly reduce emissions and create demand for the gas.

Looking Forward: What Does the Future Hold for Hydrogen Fuel?

The journey toward economically viable hydrogen is undoubtedly complex, and as Fuller Treacy Money’s analysis suggests, a long way off. However, we must not shy away from the challenge. Here are a few things to bear in mind:

• Collaboration is Key: Public-private partnerships, international collaboration, and cross-sector knowledge sharing are vital to move the hydrogen economy forward.
• Focus on Innovation: We must continue to push the boundaries of technology, exploring and refining all of the possible pathways to producing and transporting hydrogen sustainably and economically.
• Strategic Leadership: Leaders in the energy sector need to be equipped with the knowledge and skills to navigate this complex landscape, making informed decisions and fostering a culture of collaboration and innovation.

At CASTOR+PARTNERS, we are committed to helping leaders navigate these transitions. The future of energy is not just about technology; it’s about leadership and a willingness to embrace change. If you are interested in discussing how you can drive innovation in your organization, please reach out. We’re ready to help you navigate this exciting and challenging terrain.

What are your thoughts on the hydrogen economy? Let’s continue the conversation in the comments.

Sources: Fuller Treacy Money, Tech News, Offshore Energy, Intelligent Living, Norton Rose Fulbright, Investor’s Business Daily, World Economic Forum.