Green hydrogen could revolutionize energy production, helping utilities run more flexible power grids while reducing fossil fuel emissions.
Could hydrogen power be the key to a more carbon-free world?
Although a high percentage of the hydrogen power currently produced comes from fossil fuels, further declines in the cost of emissions-free “green” hydrogen production could accelerate the use of hydrogen in a variety of industrial applications.
As renewable energy capacity demand increases and prices drop, the cost of hydrogen production by 2030 could drop by 70% from current levels.
According to a recent report from Morgan Stanley Research, green hydrogen gas shows promise as a way to reduce emissions on existing industrial processes, provide fuel for buses, trucks and ships and help utility companies manage electric grid stability. While green hydrogen still needs to overcome hurdles to widespread adoption, the upside for global reduction in carbon could reap benefits worldwide.
Widespread adoption could initiate a hydrogen revolution, helping nations and sectors to reach pledged decarbonisation targets. One industry association suggests that by 2050, hydrogen could represent US$2.5 trillion in global annual sales, up from $130 billion in 2017.
Several industries already use hydrogen gas in industrial processes, most commonly in the production of ammonia. Oil and gas companies also use hydrogen to remove sulfur from fuel. But currently, 96 percent of hydrogen production is derived from fossil fuels, primarily from methane but also from other natural gases, liquid hydrocarbon and coal.
But hydrogen can also be produced through a clean process called water electrolysis. In this method, a device called an electrolyzer degenerates water into hydrogen and oxygen molecules using an electric current from renewable sources. While this process is emissions-free, the cost of electricity—nearly half of the cost of the water electrolysis process—makes the method economically suboptimal in the short term.
However, the expanding availability of renewable sources of energy, including solar and wind power, could presage a sharp decline in the cost of electricity in the coming decade. As a result, it would make the production of hydrogen via the clean water electrolysis process a far more cost-efficient operation.
“As renewable energy capacity demand increases and prices drop, the cost of hydrogen production by 2030 could drop by 70% from current levels," says Carolina Dores, Co-head of the Morgan Stanley European Utility team. “The key to cost savings could be hydrogen production facilities built jointly with wind/solar farms, so producers could generate power without incurring grid fees, taxes and levies.”
Such a decrease would mean the 2030 cost of green hydrogen production could nearly match that of production via methane, a far less environmentally friendly process.
“While green hydrogen today is uneconomical, we estimate price parity is possible," Dores says. “However, the industry will need broad government support to develop through incentives such as electricity grid fee waivers, support for infrastructure development and tougher environmental standards."
Despite the cleanliness of its production via electrolysis, hydrogen is flammable, colorless and odorless, which makes safety checks more difficult. Other hurdles include limited infrastructure to store and transport the gas at present, the inefficiency of energy use in its production, and the need for high volumes of drinkable water for use in electrolysis.
But cheaper green hydrogen production opens the door to emissions-reduction efforts in several industries, potentially increasing its demand significantly in the coming decades.
For example, vehicles could use fuel cells to store hydrogen that would be converted to the electricity needed for power. While hydrogen-powered fuel cells are likely expensive for passenger cars compared to battery-powered vehicles, the fact that vehicles could operate at long range without need for charging could prove attractive to truck and taxi manufacturers.
Meanwhile, the use of green hydrogen by 2030 could prove more cost-effective for chemical manufacturers in their production of ammonia, which would reduce carbon emissions. In steel production, green hydrogen could replace natural gas in the reduction process of iron ore to iron.
Petroleum companies in Europe already use about 2.1 million tons of hydrogen annually in refineries to remove sulfur from fuel. While the upfront investment in electrolysers could cost €1 billion to €2 billion, upcoming regulations will further reduce acceptable sulfur levels in some fuels, making the process even more important.
Finally, green hydrogen could also create a virtuous circle for the power sector. The lack of flexibility of renewable power systems generated by wind and solar has often been highlighted as a concern by sector players.
Electrolysers could theoretically offer ancillary services to power grids to offset this lack of flexibility by converting electricity into hydrogen which, unlike electricity, can be stored. By building up installed electrolyser capacity, national power systems could achieve a higher share of renewable power without creating too much instability.