The promise, opportunity and challenge of green hydrogen
posted by Marsha Vande Berg on June 18, 2023 - 4:24am
(Marsha Vande Berg is director of MJGlobal Insights, a resource for corporate and fund decision-makers when shaping their dynamic sustainability stakeholder narratives. The former CEO of the Pacific Pension & Investment Institute, Marsha has worked with pension executives worldwide. A Stanford University Distinguished Careers Fellow and author of MJGI Briefs, you can reach her at linkedin.com/in/mjvb and follow her @MarshaJVB.)
By Marsha Vande Berg
SAN FRANCISCO — If there’s opportunity in complexity, then today’s search to sideline fossil fuels with the help of green hydrogen has considerable promise albeit on a slow but realistic path to long-term energy security for rich and poor countries alike. This is because fusion power could well turn out to be energy’s holy grail — a cheap, clean, limitless and exportable fuel supply.
Still the path forward will not be easy — or inexpensive. Green hydrogen development comes with staggering costs. One such estimate by Lex in the Financial Times calculates a global net zero energy system could require 500 million tons of hydrogen annually, entailing some $20 trillion in investment by 2050.
More than a thousand new projects
Where are we now in terms of estimated costs and investment? The Hydrogen Council, an industry body, reports some 1,040 new hydrogen projects are on track today around the world, requiring $320 billion in investment. So far, would-be developers have committed $29 billion.
The actual rollout of fusion energy happens in tiers, which adds capex for production, equipment — notably the costly electrolyzers which are essential to containing the fusion reaction; and the infrastructure for transport and storage. Unlike gray hydrogen, which is the most common form of production and which relies on extracting natural gases in a carbon intensive process, green hydrogen by definition requires renewable energy to drive the process to split the water into hydrogen and oxygen without carbon residual.
It’s this promise of green, clean and limitless transportable supply that has prompted the familiar holy grail moniker. It’s also this promise that is prompting governments to roll out subsidies, loans and grants to kickstart the technology’s development and domestic green hydrogen industries.
IRA gives green hydrogen industry a boost
For example, the Biden administration’s Inflation Reduction Act (IRA), passed by Congress last August, is considered a game changer for the U.S. green hydrogen industry. That’s because it offers substantial tax credits to domestic producers and renders U.S.-produced green energy the world’s cheapest. It’s intended that this in turn brings down costs for green steel versus steel made with electricity from fossil fuels. This then should stimulate demand for green steel and possibly green cement and green glass. So the argument goes.
Production costs also extend to the choices of process when making green hydrogen. Producers choose between two processes associated with arcane names and Soviet-era technology, and a third characterized as lasers and beams. One of the frequently used processes is the tokamak, an outsized magnetic donut whose technology was pioneered in the 1950s by Soviet scientists. Another is the stellarator — described as a container twisted like an outsized Mobius strip.
Adding to the complexities of getting to green hydrogen as a viable energy resource is the fact that the tokamak, the stellarator or lasers and beams don’t actually generate electricity. To qualify as true green, they also must be run by electricity made from wind, solar or hydropower. Clearly, hydrogen is a clean fuel but only if it’s produced and used in a clean way. There’s no middle ground.
When will green hydrogen be mainsteam?
So is green hydrogen headed for mainstream technology? It will not surprise you to learn the answer is neither straightforward nor simple. The answer is a surmise. It’s a bet that there is no alternative given our tendency to now view climate change as an existential threat. It’s also why 15 governments plus the EU decided to underwrite rollouts of green hydrogen experimentation, development and production.
By the same token, there are signs the bet will pay off. On the scientific front, the National Ignition Facility at the Lawrence Livermore National Lab in Northern California realized a fusion breakthrough last December that was heralded worldwide as a scientific energy breakeven milestone. After years of research by a cast of thousands, laser-driven fusion experimentation produced a greater amount of energy through fusion reaction than the amount of energy required for the lasers to initiate production.
For private sector developers, the breakthrough also signaled the possibility of commercial viability. If the technology, the technique and the process can now be scaled at a competitive cost and/or in a way that ultimately drives costs down, then green energy’s holy grail may be within reach.
According to a July 2022 U.S. Fusion Industry Association report, there are now more than 30 fusion-related companies worldwide, with funding totaling more than $4.8 billion. There are also international consortia working to produce production breakthroughs equivalent to what happened last December at the Lawrence Livermore Lab.
Another report, EY’s Renewable Energy Country Attractiveness Index (RECAI) 2023 ranks the top 40 markets biannually based on investment in renewable energy generally and including green hydrogen. The report notes the key role played by investment by both governments and the private sector. It also includes a Power Purchase Agreement (PPA) Index, which singles out corporate PPAs and related market trends.
The U.S. ranks first in the Renewable Energy Country Attractiveness Index largely because of the IRA and its green hydrogen tax credits. Noteworthy private sector initiatives include Microsoft’s MSFT 0.00 power purchase agreement with Helion Energy, a U.S. startup focused on fusion power. In the agreement, the first contract for the sale of fusion power is likely in 2028. The anticipation is if corporate support builds, commercialization will follow.
China ranks second on the RECAI largely reflecting the government’s commitment to accelerating its renewable energy transition. As part of its five-year plan, Beijing aims to generate one-third of its electricity from green sources by 2025. It also intends to increase wind and solar capacity by twice the current rate and to start cutting coal use from 2026.
Green hydrogen’s role in the energy transition
Green hydrogen figures prominently in the transition plans. The country is host to EAST, the Experimental Advanced Superconducting Tokamak which realized a breakthrough in 2021 in its process of experimenting. EAST succeeded in running its tokamak at 326°F. for an unprecedented 101 seconds. It increased that runtime by a factor of four a few months later.
Australia is ranked 6th on RECAI. The ranking recognizes Australia’s intentions to position itself to take the lead globally in green hydrogen production. With plans for more than 90 projects and a $250 billion investment, Australia intends to be a hydrogen exporter to partners, friends and allies across Asia.
Australia’s Providence Asset Group, an investment firm, recently partnered with the Japanese industrial conglomerate Marubeni to develop 30 solar farms in Australia. The project will combine renewable energy with battery and hydrogen storage. The aim is to export green hydrogen to Japan.
India ranks seventh on the RECAI, recognizing the Modi government’s steps to look to new emerging technologies, including green hydrogen to reach its carbon transition goals. India’s particular challenge is that the production of green hydrogen at scale requires large quantities of both renewable energy and clean water.
While the Modi government has allocated funds together with a Green Hydrogen Mission roadmap, water is a state jurisdictional matter. The seven industrial clusters identified in a NITI Aayog report with existing hydrogen industries and likely to take on green hydrogen, also face water challenges.
The Adani Group is by far the top green hydrogen manufacturing company. The Group’s Adani Green has made heavy investments in green energy and other renewable energy sources. The port-to-energy conglomerate came under fire in January when US-based short-seller Hindenburg Research released a report alleging stock manipulation and accounting fraud. Adani denies the allegations.
Two years ago, another Indian multinational, L&T Group partnered with ReNew Power, India’s leading renewable energy company, to develop the country’s green hydrogen business. It is building a hydrogen plant in Gujarat, the home state of Prime Minister Modi.
The Mumbai-headquartered L&T Group also is playing an important role in building the world’s largest green hydrogen facility. Saudi Arabia’s NEOM Green Hydrogen Company plans to build an $8.4 billion, mega facility to produce green hydrogen at scale for global export, including in the form of green ammonia. The project is supported by 12 local, regional and international banking and financial institutions.
L&T provided the funding’s closing according to the firm’s June 1 announcement. L&T will build the project’s renewable energy infrastructure, including its generation, storage and grid capacity alongside capacity to produce carbon-free, green ammonia using water electrolysis.
(Yale University experts argue that green ammonia has potential to be a clean fuel source for generating electricity and powering ships.)
Japan, too, is competing to be a hydrogen superpower. Tokyo and Japan Inc. are angling to take giant steps with green hydrogen and heavy industry as well as other hard-to-decarbonize sectors.
While METI (Ministry of Economy, Trade and Industry) is spending billions to commercialize the use of hydrogen in blast furnaces by 2030, Mitsubishi Heavy Industries is building a zero-carbon steel mill in Austria. Mitsubishi is also part of a consortium of Japanese public and private sector groups investing $73.6 million in Kyoto University startup Kyoto Fusioneering (KF).
This will be the world’s first integrated testing facility for fusion power plant components and a leading platform for testing power generation systems for private fusion companies. Completion of the UNITY (Unique Integrated Testing Facility) is to be in 2025.
While the challenges are monumental, the momentum is continuing to build in search of a solution for energy security worldwide. Important is that the promise of the opportunity finds ways to extend to developing economies in concert with promising advances in the industrialized economies.