Hydrogen: A Climate Change Savior Or Merely A Green Mirage?
“Europe is rushing to implement an energy structure that is based on clean energy. To address the difficult challenges of renewables, Europe is pushing hydrogen as the solution, regardless of its high cost.”
Remember the Obamacare debate ads showing granny in her wheelchair being pushed over the cliff? They could rerun those now, only they would change the pusher to be climate change. At one point, the climate change’s savior (then known as global warming) was natural gas. Environmentalists embraced the fuel for its lower CO2 emissions quality. They argued we should switch from burning coal to burning natural gas for our power and our carbon emissions would drop. According to data from the U.S. Energy Information Administration (EIA), natural gas emits 117 pounds of CO2 per million British thermal units (Btu) of energy. That is 50% to 60% of the amount of CO2 emitted from burning anthracite or bituminous coal in a typical new coal plant.
The United States and Western Europe have led the charge to reduce the burning of coal for generating electricity and use natural gas instead. According to the U.S. Environmental Protection Agency (EPA), the energy generation sector – electrical power and heat – is the largest source of greenhouse gas emissions (GHG), accounting for more than 60% of all GHG emissions from burning fossil fuels for energy. Electricity production represents 28.4% of the GHG emissions, while industry heat accounts for 22% and commercial and residential is 11%.
The impact of the coal to natural gas fuel switch is that CO2 emissions declined where it was done. The long-term trend shows a decline beginning in 2019. This would follow a nearly 50-year trend of rising emissions, albeit with brief periods of declines or stable emissions. Exhibit 1 shows how emissions flattened beginning in 2010, but then jumped up in 2017, before beginning a slow decline the next year, which is projected to continue into 2020. The projected emissions decline is
Exhibit 1. Will 2020 Mark A New Emissions Future? SOURCE: JP Morgan Chase
associated with the global economic shutdown in response to the coronavirus. The cessation of economic activity also led to cleaner air over normally polluted cities. The net effect of Covid-19 on air quality has invigorated the clean energy movement, especially in Europe, and increasingly in the United States.
At the time natural gas was the environmental darling for ousting coal from the power sector burn mix, it was high-priced. It was selling for $8-$12 per thousand cubic feet (Mcf). Environmentalists were happy to back expensive natural gas because it helped to blunt the criticism of renewable energy’s high cost. By keeping the focus on high-cost natural gas, expensive solar and wind power looked more competitive, and it deflected from the intermittency concerns. That bubble burst when the shale revolution slashed natural gas prices, thereby significantly undercutting renewable fuels. With natural gas prices wandering in the desert of $2/Mcf prices, environmentalists’ preferred wind and solar fuels had to rely on subsidies and government mandates to grow their shares in the power supply mix.
We have progressed from global warming to climate change and now climate emergency, as fear of environmental calamity has become the environmentalists’ preferred weapon to promote renewable fuels. We are told that the world has only 12 years to avoid the end of the world. No, the world won’t end after 12 years. That is the time period within which slashing carbon emissions would keep the global average temperature from rising by more than 1.5o C (2.7o F) by 2100. Avoiding this disaster is why environmentalists are increasingly promoting carbon-free hydrogen fuel as the future for powering our economy.
It is impossible to read energy news today without coming across an article about the virtues of hydrogen, and its potential role as the latest Superman fuel to fight climate change. In fact, during the month of July, the Financial Times, which is published worldwide six days a week, contained six articles about hydrogen in the span of 24 issues. It is possible that most of these articles were designed to prime the debate within the European Union, which was starting work on economic recovery plans. Embracing clean energy as a key foundational tenet of economic stimulus measures was seized upon as a double-barreled solution. You would not only get clean energy, but you would also create millions of new jobs. This made it easy to sell to citizens. Europeans were assured that not only would hydrogen give them clean energy, it would reduce their electricity costs, because hydrogen was following the downward trend seen in wind and solar costs. Is that reality, or a myth?
Exhibit 2. The Many Uses OF Hydrogen SOURCE: Clean Energy Wire
Hydrogen is a versatile fuel. It can be used in both a gaseous and liquid form. Thus, it can be used in conjunction with or as a replacement for natural gas in all its fuel applications, as well as a replacement for liquid fuels such as gasoline, diesel, jet and bunker fuels for the transportation sector. This is why it is viewed as the Superman of renewable fuels. Hydrogen can also be a feedstock for various foundational chemical products. It is in this latter role that hydrogen has functioned for decades. And that use has grown over time.
Exhibit 3. The Markets For Hydrogen Are Growing SOURCE: FT.com
Hydrogen’s growth has occurred despite the fuel being expensive. It is costly because it requires the use of vast amounts of electricity to produce it. In addition, the cost to store and transport hydrogen is high. William Todts, executive director of campaigning group Transport & Environment, told a Financial Times reporter that there are three big problems with hydrogen: it requires expensive infrastructure, its vehicles are more costly than other green alternatives, and the fuel itself is less competitive than rivals. Despite those challenges, the EU is pushing hydrogen as an important industrial policy. At the center of this policy is the formation of a “hydrogen alliance,” to funnel public money to businesses developing the “green” fuel. Thierry Breton, commissioner in charge of industry, told the Financial Times that hydrogen technology “will be strategically important for energy independence and the future of Europe.”
It is important to understand why hydrogen is being promoted by the EU and its various member states, but it is also beginning to be pushed by China. Why? It goes to industrial policy. In Europe, the hydrogen push is an admission that its clean energy policies have created serious issues for the continent’s and the UK’s energy markets due to intermittency. With wind and solar power producing only 35%-40% of generating capacity, countries are forced to build 2-3 times the capacity necessary to generate the power needed. In other words, the power industry must over-invest in generating assets in order to meet demand needs. That is a huge misallocation of resources and investment.
As more renewable power capacity has been built, various country utilities must pay renewable energy producers to not produce power when it is not needed, as the surplus power disrupts the grid. In the United Kingdom, National Grid ESO, the country’s system operator, expects to spend £826 ($1.1) billion in payments to wind farms in order to balance the grid during May to August. Germany is experiencing a similar surplus renewable power payments problem.
To balance electric grids that are disrupted by renewable power, utilities will need to invest in batteries, pumped storage, or other power storage systems. One system being tested is using the surplus renewable power from solar and wind farms to create hydrogen and store it until the power is needed. This system is thought to be more flexible than conventional battery storage, which has limited supply (usually four hours) and then adds demand to the grid as they need to be recharged in order to be of value in the future.
The way to produce “green” hydrogen, which is carbon-free, is via electrolysis, which uses substantial amounts of electricity to separate the hydrogen and oxygen molecules that make up water. That is why it is the most expensive option. The idea for reducing the cost is to use surplus renewable power that is currently going to waste. There have been several experimental projects announced that will use offshore wind facilities to produce hydrogen when the power output is not needed, store it and then retrieve it to generate power when it is needed.
Exhibit 4. How An Electrolysis Unit Works SOURCE: U.S. Department of Energy
Recent research published in Nature Communications showed that capturing hydrogen by splitting it from oxygen in water can be achieved by using low-cost metals like iron and nickel as catalysts, which speed up the chemical reaction while reducing the amount of electricity required. Additionally, iron and nickel are found in abundance on Earth, which allows them to replace precious metals ruthenium, platinum, and iridium that are regarded as the preferred catalysts in the ‘water-splitting’ process.
According to Professor Chuan Zhao of the University of New South Wales School of Chemistry and the lead author of the study, “What we do is coat the electrodes with our catalyst to reduce energy consumption. The key to the process he explained was that “On this catalyst there is a tiny nano-scale interface where the iron and nickel meet at the atomic level, which becomes an active site for splitting water. This is where hydrogen can be split from oxygen and captured as fuel, and the oxygen can be released as an environmentally-friendly waste.” So maybe the electrolysis process can produce hydrogen cheaper by using less electricity. This is where European industrial policy, and especially the policy in Germany, may dictate the future success of green hydrogen.
Exhibit 5 (next page) shows Germany having the largest market share of electrolysis equipment in 2016. According to reports, it still leads with a 20% market share in 2020. Most reports of the global water electrolysis market show German companies dominating the market. The top companies with their geographical location include ThyssenKrupp Ag (Germany), Linde AG (Germany), Air Products and Chemicals, Inc. (U.S.), Siemens AG (Germany), ProtonOnsite (U.S.), Teledyne Energy System Inc. (U.S.), Areva H2Gen (France), Hydrogenics Corporation (Canada), Erre Due s.p.a (Italy) and Peak Scientific (Scotland).
Exhibit 5. 2016 Electrolysis Market Share By Country SOURCE: Frontier Economics
China, shown with the fourth largest market share in 2016 is investing heavily in the technology. Two weeks ago, five Chinese auto manufacturers teamed up with Toyota Motor Corporation to fund a venture to develop fuel cells for commercial vehicles. With Toyota owning 65% of the venture and providing the largest investment, it will be a vehicle to allow the company to push deeper into the China transportation market, while continuing to develop the business of alternate energy sources.
Toyota has been one of the biggest backers of fuel cells among global automakers, betting that they can become a source of energy for electric vehicles (EV) on par or even better than batteries. EV companies and proponents scoff at the idea of fuel cells competing with batteries. Toyota’s fuel cell interest is especially focused on commercial applications such as buses and trucks. That interest is supported by estimates from Bloomberg NEF that annual sales of fuel cells are on track to reach one million vehicles by 2035, largely driven by growth in buses and commercial vehicles mainly in China, Korea, Japan and Europe.
The cost of hydrogen remains a major hurdle for commercialization. Optimistic projections for major cost reductions abound, but the Hydrogen Council report (Exhibit 6, next page) shows how hydrogen costs compare competitively in specific markets, along with other low-carbon competitive fuels. Outside of existing hydrogen applications in refining and specific commodities, only the forklift market seems to be even remotely competitive.
Europe is betting heavily on hydrogen – both to foster its industry and because it sees hydrogen as a way to use its natural gas distribution system that will be increasingly challenged as North Sea and Netherlands gas fields play out. At the same time new hydrogen test projects are underway, companies are striking deals to use surplus, or extremely cheap solar power in the Middle East and North Africa to produce hydrogen that would be piped into
Exhibit 6. Hydrogen’s Cost Competitive Challenge SOURCE: Hydrogen Council
Europe. The backbone of the continent’s pipeline network, and where it links to Africa and the Middle East are shown in orange on the map in Exhibit 7. A potentially fatal flaw in this scenario is assuming those Middle East and African hydrogen suppliers would agree to sell their output at marginal prices. If they saw their hydrogen becoming the primary energy supply for Europe, why wouldn’t they strive to price their product as high as possible? (We remember when solar thermal projects in those regions were going to produce electricity that would be shipped via cables laid through the Mediterranean Sea.)
Exhibit 7. Backbone Gas Pipeline System in Europe SOURCE: Power for USA
This push by European companies, especially those based in Germany, reflects the concern they have about their competitive lead over Chinese companies. A study by Agora Energiewende, an energy consulting firm based in Berlin, Germany, shows what might happen to the cost of alkaline electrolysers by 2030. Under such a scenario, Germany has to be worried about losing its technology and its market position, just as happened with solar panels.
Exhibit 8. How China Could Upend Europe’s Strategy SOURCE: Agora Energiewende
Two charts dealing with the solar panel market show why Germany is concerned for its industry. Exhibit 9 shows the market share for leading solar panel manufacturers from 1995 to 2013. At the start of the solar panel business, the United States and Japan dominated the market. In 2000, Germany’s market share was 8%, compared to 1% for China. By 2007, both countries were at 20% market shares, but Germany’s share was heading down, while China’s was soaring. China’s industrial policy to dominate the global solar panel market, even with a lower-quality product, has destroyed the market for other producers.
Exhibit 9. How Germany Lost The Solar Market SOURCE: Wikipedia
The outcome of China’s solar panel policy is demonstrated in Exhibit 10 showing what happened to solar jobs in Germany during 2007-2015. The German government and its allies in Brussels fear a similar loss of electrolysis technology and market share to China, as it appears the Chinese government may be targeting this clean energy technology. The solar panel experience cannot be underestimated when considering China’s economic policy. They already are leading the world in EV implementation, and we fully expect it wants to dominate the EV market, as well as batteries, where it already has a dominant position in rare earth minerals. The new electrolysis technology could be a competitive weapon against China. As an aside, we would point out the latest comment from Tesla CEO Elon Musk that he plans to sell his China cars in Europe cheaper than German-produced EV models.
Exhibit 10. Lost Solar Market Cost German Jobs SOURCE: Wikipedia
Hydrogen faces two significant challenges: i) cost, and, ii) storage and transportation. In the Hydrogen Council report, low-carbon baseload supply hydrogen will only be “relevant in regions constrained in renewables potential and situations where alternatives like fossil fuels with direct CCS [carbon capture and sequestration] or biomass (wood chips or biogas) are not an option.” The study suggested that in those markets, “companies could import hydrogen and use it to power hydrogen turbines.” The economics becomes a serious issue. Assuming an import price of $3 per kilogram (kg) of hydrogen, power produced from hydrogen turbines could cost about $140 per megawatt-hour (MWh). In comparison, a 2019 estimate of the levelized cost of energy suggests the unsubsidized cost of natural gas combined cycle electricity generation today is between $44/MWh and $68/MWh, a current 50%-70% cost advantage compared to a hypothetical cost estimate for hydrogen.
Storing the hydrogen at scale is another question. A key issue is the physical properties of hydrogen compared with natural gas. Hydrogen molecules are smaller than those of natural gas, thus they may slip through the walls of plastic pipe, and potentially allow it to escape from some forms of gas storage.
There are three methods for underground storage of natural gas. The European hydrogen strategy assumes that existing natural gas storage facilities will prove adequate for storing hydrogen. Those facilities are: salt domes, aquifers and depleted oil/gas reservoirs.
A study by the U.S. Department of Energy (DOE) suggests that salt domes are probably a secure way to store hydrogen. However, there remains the possibility of hydrogen attacking steel fixtures (the piping connected to the salt dome) with hydrogen embrittlement.
In the case of aquifers, the DOE reports that while they are similar in geology to depleted reservoirs, they have not been proven capable of trapping hydrogen. Thus, aquifers will need further study before being proven to be able to store hydrogen safely.
With depleted oil/gas reservoirs, a study by TU Clausthal, Department of Hydrogeology, Institute of Disposal Research, Leibnizstrasse 10, 38678 Clausthal-Zellerfeld, Germany, concluded that underground storage of hydrogen in depleted gas fields (and aquifers) entails the risk of hydrogen loss (and related energy loss) by bacterial conversion to CH4 and H2S and gas–water–rock interactions, which in turn lead to changes in the porosity of the reservoir rock.
At the present time, the European hydrogen strategy has not distinguished between these storage types. Therefore, it is unclear whether there is sufficient existing salt dome storage, or if new storage capacity needs to be built. This may not be an issue if the economic challenge can be overcome, and based on the current information, that may not be clear for years. Only then will storage capacity become an issue.
There is little doubt that energy planners are assuming hydrogen will play a significant role in Europe’s carbonless future. The GHG characteristics of hydrogen are compelling. The cost issue is a huge hurdle that must be overcome, or the public must be convinced of their moral obligation to accept expensive energy. What Europe cannot accept is seeing China dominate hydrogen technology and destroy the economics necessary to propel the long-term growth of the continent’s economy. Germany is already watching with concern as its automobile industry’s investment in EVs is being directed elsewhere. Losing the hydrogen race could be cataclysmic. China could end up controlling all clean energy technologies in the world.