Green energy sector seeks to divine demand for hydrogen

On an overcast day at the end of May, the UK’s energy minister climbed aboard the world’s first hydrogen-powered digger. 

After connecting a pipe to refuel the white-and-green backhoe loader, built by JCB, Claire Coutinho vowed that Britain would “stay at the front of the race” to use renewable hydrogen to reduce emissions from the construction industry. 

But not everyone agrees that hydrogen will necessarily be the future fuel for heavy machinery. “I’m sorry Lord Bamford [JCB’s owner], I love that you have built an internal combustion engine that runs on hydrogen, but who is going to buy it?” asked Michael Liebreich, who runs a clean energy advisory firm, as he published his latest assessment of which sectors are likely to switch to the clean-burning gas.

“It takes 16 to 18 tube trailer deliveries of hydrogen to replace one delivery by diesel tanker and I just can’t get my head around the logistics or safety of hydrogen . . . on a construction site,” he explained. 

In practice, the number of sectors where it makes sense to use hydrogen is becoming more and more realistic than it was before

Around the world, industries rushing to replace fossil fuels with green hydrogen — produced using renewable energy — are also reconsidering where the future demand will actually come from. 

“We were told hydrogen was going to be the Swiss Army Knife of the energy industry, that it can be used everywhere,” says Anne-Sophie Corbeau at Columbia University’s Center on Global Energy Policy. “In theory, this is, of course, correct. But, in practice, the number of sectors where it makes sense to use hydrogen is becoming more and more realistic than it was before.” 

Its high cost is one obstacle. Proponents of green hydrogen believe that it can eventually be produced for $1 per kg, the same as the price of hydrogen produced by fossil fuels; the current price, however, is at least five to 10 times higher. 

At the top of the list of clients for green hydrogen are those for which it is the only viable solution to cutting emissions: businesses involved in ammonia production for fertiliser, the hydrogenation of fats in the food industry, hydrocracking to produce jet fuel and diesel, and steelmaking. 

Other industries where there is likely to be demand for green hydrogen include shipping, aviation, chemicals and power generation. 

“There are certain industries where the carbon emissions simply cannot be abated, other than with green molecules,” says Marco Raffinetti, the chief executive of Hyphen, which aims to build a large green hydrogen plant in Namibia. “The fertiliser industry is a big driver. Shipping is a big driver. Then power generation, fuel, steel production and so on. So we focus specifically on those use cases.”

But he adds that, until politicians have determined the incentives and built more green hydrogen infrastructure, it is difficult to predict how much demand there will be from industries to switch to the fuel.

At present, less than 1 per cent of the world’s hydrogen is produced from renewable sources, according to the International Energy Agency (IEA). The IEA predicts that more than 70mn tonnes of hydrogen will be produced annually by electricity or from power plants with carbon capture systems by 2030, and that there will be demand for 430mn tonnes a year by 2050. 

However, these projections assume the world is on a path to net zero by that time, notes Corbeau. “We are not on a net zero pathway,” she points out. “So this is a very simple answer. When you are looking at the forecasts, they are extremely optimistic, but this is relying on a net zero scenario.”

She adds that the cost of green hydrogen has been rising in the past year because the cost of wind and solar power has increased, and the cost of the electrolysers used to make hydrogen is higher. Financing costs have also risen. 

Corbeau warns that it will take longer than expected to create a proper market for green hydrogen. “What people want to see is an [advance] offtake agreement, the same way as we have offtake agreements for LNG [liquefied natural gas],” she says. “Then, you are guaranteed that the hydrogen is going to be used by somebody.”

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“At the beginning, we are going to have a market where one supplier is talking to maybe a couple of buyers,” Corbeau suggests. “It took us more than three decades before the LNG market could be said to be liquid, and hydrogen is more complicated.”

The biggest question mark over future demand is how quickly China will embrace green hydrogen. China currently accounts for one-third of global demand for the gas, according to the IEA. But, while the Chinese government has said it wants to become a global leader in low-carbon hydrogen, its current strategy aims only to produce 100,000 to 200,000 tonnes of renewable hydrogen by next year, with no target after that. 

Elsewhere, of the countries that have released hydrogen strategies, more than 40 say they plan to export the fuel, but only 12 are planning to be importers — suggesting that politicians are focusing more on the supply of hydrogen than on future demand. 

“People thought, OK, we need to tackle the problems on the production side,” says Corbeau. “They never actually realised that there was also a problem on the demand side.”

Letter in response to this article:

Advant­age of hydro­gen is it can do what elec­tri­fic­a­tion can­not / From Clare Jack­son, CEO, Hydro­gen UK, Birm­ing­ham, UK