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generates electricity from hydrogen.   industrial processes, heating, fuel cell   To meet these ambitious
                 Working in reverse, electrolysers use   buses and trucks (not passenger cars),   environmental targets, governments
                 electricity to generate hydrogen from   grid and back-up power generation in   will need to put supportive policies in
                 water. Currently, 99 per cent of the   areas with strict restrictions on emissions   place. Scale, as the experience of falling
                 hydrogen produced globally is done   and materials-handling equipment.  renewable energy and battery prices
                 so through techniques based on fossil                             highlights, is the key to sustained falls
                 fuels, so the widespread deployment of   HYDROGEN ESSENTIAL TO ACHIEVING    in production costs. Yet it is difficult
                 electrolysers running off surplus wind   ‘NET ZERO’ TARGETS       to justify the investment in either the
                 and solar power is needed to ensure   Net zero targets cannot be achieved,   R&D or capacity needed to scale-up
                 enough ‘green’ or renewable hydrogen.   in our view, without green hydrogen.   hydrogen production without greater
                                                  Recently published forecasts from   visibility of demand.
                                                  the EU, the Hydrogen Council and   Widespread adoption of hydrogen
                 Costs for renewable hydrogen     Bloomberg New Energy Finance     will require co-ordinated investment
                 are going down quickly.          (BNEF) suggest hydrogen could grow   across the energy industry in new or
                 Electrolyser costs have reduced   significantly by 2050.          adapted infrastructure. To reduce the
                 by 60 per cent in the last       Decarbonising the hard-to-reach sectors   need for additional infrastructure and
                                                                                   improve the economics, industrial
                 ten years. For regions where     Hydrogen is critical for replacing   sectors such as steelmaking, chemicals,
                 renewable electricity is cheap,   coal and gas in fossil-fuel intensive   oil and gas should look to collaborate
                 electrolysers are expected to    industrial processes such as     and co-locate in hubs. Governments
                 be able to compete with fossil-  steelmaking. By storing the excess   will need to play a role in facilitating
                                                                                   this co-ordination and establishing
                                                  energy generated by renewables
                 based hydrogen by 2030.          until it is needed, hydrogen can help   sufficient demand certainty in the
                                                  address intermittency in the power   initial development phase.
                                                  sector and provide a potential path
                 Enabling the transition – pushing    for decarbonising heating. Hydrogen’s   HYDROGEN PRODUCTION AND DISTRIBUTION
                 down costs of fuel cells and     high energy-to-mass ratio makes it   The infrastructure needed to create,
                 renewable hydrogen               particularly suitable for heavy-duty,   store and distribute hydrogen is also
                 At present, neither renewable hydrogen   long-distance road freight, maritime   essential for the development of the
                 nor fossil-based hydrogen with carbon   and aviation applications.   market. In the initial phase of the EU’s
                 capture are cost-competitive with                                 roadmap, hydrogen will be generated
                 fossil-based hydrogen. However, costs   Adoption still dependent on   close to where it is used by multiple
                 for renewable hydrogen are going down   government initiatives    clients on industrial parks or hubs. Such
                 quickly. Electrolyser costs have reduced   Investment in hydrogen technology   clusters are already forming, for example
                 by 60 per cent in the last ten years. For   and capacity has accelerated in the last   in Fukushima in Japan, Ulsan in South
                 regions where renewable electricity   year, analysts have lifted long-term   Korea, San Pedro Bay Ports in California,
                 is cheap, electrolysers are expected to   forecasts and share prices have soared.   Pilbara in Western Australia and Hebei,
                 be able to compete with fossil-based   Yet hydrogen has a long history of not   Hunan and Shandong in China.
                 hydrogen by 2030. The cost of fuel cells   delivering on its potential. Historically, its   Ports around the North Sea appear
                 is also expected to fall.        role has been limited by high production   particularly active with projects such as
                                                  costs and the need for new and adapted   Humber Zero and the Tees Valley in the
                 Virtuous circle required – government   infrastructure to support distribution   UK and H-Vision Rotterdam and NortH2
                 funding and regulatory frameworks   and storage. Falling renewable costs are   in the Netherlands. These sites could
                 are key                          addressing the price premium for green   potentially expand to form hubs where
                 These cost reductions are predicated   hydrogen, but governments will also need   electricity from wind farms in the North
                 on the creation of a virtuous circle that   to provide investment and implement   Sea could generate hydrogen to use in
                 drives hydrogen adoption and triggers   policies that explicitly encourage   local petrochemical and steel industries.
                 the economies of scale required. This   hydrogen adoption and deliver the scale   The IEA estimates that North Sea
                 requires government investment   required to drive down costs.    generation capacity is expected to
                 in infrastructure, R&D, as well as                                exceed 50GW by 2030, roughly two-
                 an enabling regulatory framework.   Converting ambition into reality:    thirds the current total electricity
                 Although it is impossible to say how   Policy and economics       generation capacity in the UK. Beyond
                 successful investment and policy   The EU’s recently published report, A   these hubs, the economics of hydrogen
                 initiatives will be, the level of support   hydrogen strategy for a climate-neutral   distribution get more challenging.
                 is likely to be the major determinant of   Europe, suggested hydrogen’s share   Hydrogen flows faster than natural
                 how rapidly the market grows.    of Europe’s energy mix could grow   gas, making it potentially suitable for
                                                  from two per cent in 2018 to 13–14 per   distribution through pipelines, but
                 The hydrogen economy –           cent by 2050. The Hydrogen Council   its smaller molecules make it much
                 decarbonising the final 20 per cent  (a global CEO-led initiative of over 90   leakier. Upgrades to pipeline networks
                 At least 20 countries, collectively   leading energy, transport, industry   will be needed.
                 representing around 70 per cent of   and investment companies) thinks it   The European Hydrogen Backbone
                 global GDP, are proposing hydrogen   could reach 18 per cent by 2050, BNEF   Report, published in July 2020, estimates
                 strategies or roadmaps as key elements   predicts 24 per cent globally. Estimates   a total investment of €27–64 billion
                 of their decarbonisation plans. We have   vary but it is difficult to imagine net   would be required by 2040 to create a
                 identified the sectors where we see the   zero being achieved without significant   23,000km-long network across western
                 biggest opportunities for hydrogen:   growth in hydrogen, in our view.   Europe. Three-quarters of this network



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        HydrogenEconomyReport.indd   2                                                                            11/02/2021   08:42
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