Hydrogen has been pitched as a clean superfuel that can decarbonise our heavy industry, power our vehicles and heat our homes — but its producers are finding that new projects are taking far longer to approve than expected.
In 2021, the International Energy Agency (IEA) estimated that the world would need about 150mn tonnes of low-carbon hydrogen per year by 2030 to be on course to cut global emissions to net zero by the middle of the century. Now, three years later, analysts predict that available supply at the start of the next decade will be closer to a 10th of that level.
Projects are not being developed fast enough. More than 1,600 worldwide have the potential to produce a combined 65 million tonnes per annum of low carbon hydrogen by 2030. Of those, however, only 477 are likely to be online at that point, according to a recent study by consultancy BNEF. And they can produce a total of only 16.4Mtpa,
Part of the shortfall is the result of targets colliding with the realities of delivery. But the industry is also facing specific challenges. Rising interest rates have significantly increased the cost of new projects. In Europe and the US, government schemes have been set up to subsidise low-carbon hydrogen but payments are yet to start flowing and — in many cases — customers are yet to materialise.
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“On the supply side, in a lot of markets, projects that have applied for and been allocated subsidies for producing low-carbon hydrogen, in any form, are still waiting to get those funds,” says Adithya Bhashyam, an author of the BNEF study.
Hydrogen is already being used in industrial processes to help refine petroleum, treat metals, and produce fertiliser and other chemicals. Almost all of that hydrogen is extracted from natural gas, though — which means carbon is emitted in the production process.
Hydrogen’s advocates argue that low-carbon versions of the fuel could have many uses, including powering commercial ships that currently run on oil, or heating industrial processes such as cement production, which will be hard to electrify.
Here, ‘low-carbon’ hydrogen is generally understood to mean ‘green’ hydrogen, which is extracted from water using renewable electricity, or ‘blue’ hydrogen, which is extracted from natural gas but with the associated emissions captured and stored.
But, as both processes are currently more expensive than conventional hydrogen production, governments must be able to subsidise the sector, or buyers must be willing to pay a premium for the cleaner fuel.
Marco Alverà, co-founder and chief executive of green hydrogen start-up Tree Energy Solutions (TES), is undaunted by the headwinds.
“For sure, there was too much of a hype and, for sure, the hype is coming down,” he says, comparing the situation to the dotcom crash in 2000, when a series of early internet companies failed. “The fact that these tiny start-ups are crashing on the stock market doesn’t mean that you’re not going to see the Amazons and the Googles come out in five or six years.”
TES is developing several projects, including one in Canada to produce 70,000 tonnes of green hydrogen a year by 2028 and combine it with captured carbon to produce what the company calls “electric natural gas”.
Right now, though, the only green hydrogen projects in operation are demonstration or pilot plants. Combined, they produced less than 0.1 per cent of the 95mn tonnes of hydrogen consumed worldwide in 2022, according to the IEA’s most recent analysis of the sector, while blue hydrogen projects accounted for only 0.6 per cent
Based on the IEA’s estimates, production of all low-emission hydrogen could increase to 38 million tonnes per annum in 2030 — but only if all announced projects are completed on time. More than 70 per cent of these are green hydrogen projects, and half are only at the early stages of development — meaning significant effort would be required to bring them online by the end of the decade. A more credible estimate of production in 2030 is 21mn tonnes, the IEA suggests.
Given the higher costs of green hydrogen projects and the limited existing capacity, some argue that more emphasis should be placed on developing blue hydrogen projects to grow the industry, even if the emissions footprint is higher.
“If we want to give the market much-needed scale, we need to think more in terms of low-carbon hydrogen — even if this includes using hydrogen produced from natural gas reforming with CCUS [carbon capture, utilisation and storage],” argues Gavin Watson, an energy specialist and partner at law firm Pillsbury.
In the buildout of blue hydrogen projects, the US currently leads the way while, in announced green hydrogen projects, Europe and Australia account for almost 30 per cent and 20 per cent, respectively. But, to get more projects approved, governments need to do more to build a market, argues Bhashyam of BNEF. For example, they need to implement measures such as quotas and carbon pricing that will compel customers to pay a premium.
“Across the board, we still haven’t seen full implementation of demand side incentives, or penalties for existing users and new users of hydrogens to actually switch to any form of low-carbon hydrogen,” Bhashyam says.
However, Alverà, who ran Italy’s gas network before co-founding TES, suggests a more supportive environment for low-carbon hydrogen producers is slowly emerging. “What keeps me excited is the fact that you have a combination of mandatory markets . . . voluntary markets . . . and subsidiary schemes,” he says. “The macro picture is, do we want to go past fossil fuels, yes or no?”