A collaborative effort between governments and industry will be vital if the hydrogen economy is to become a reality, according to the Hydrogen Council, a global CEO-led initiative. One central component of this is supporting the creation of financial instruments to support a market for green hydrogen.

“The cost structure of green hydrogen is dominated by the cost of renewable power,” says CEO of UK-based ITM power, Graham Cooley. “Renewable power tends to be regional in its cost structure and the techniques that we use tend to be regional. But the EU has a strategy for developing a hydrogen business model, called a contract for difference (CFD) and that is unique in the world.”

A CFD is a financial contract between two parties, where the buyer agrees to pay the seller the difference between the current value of an asset and its value at a specified time.

“If CFDs are not in place, we would not get to a hydrogen economy” Cooley, ITM Power

According to Cooley, it is vital that national hydrogen strategies help to define a business model. “Until that is done, there will be only one market—transport—because the high value of hydrogen in transport, where every vehicle comes back to the same place to refuel, is the only bankable example of a hydrogen project,” he said.

But with the right financial incentives, the trickle down through other sectors could happen very quickly where the physical infrastructure is already in place.

“You can start decarbonising industrial hydrogen and steel straight away without making a technology change and there is a large underlying demand,” he said.

“Gas infrastructure players all over the world are looking at sleeving their pipes to prevent leaks but to also retrofit them for hydrogen. Today, we can put 20pc hydrogen into the gas grid without changing any technology. If you want to go above 20pc, you need to change the end-user devices in people’s houses.”

Cooley pointed out that more than 80pc of domestic dwellings in the UK and Europe are connected to the gas grid. With the right kind of industry collaboration, countries could partly decarbonise all these dwellings at once.

“But if CFDs are not in place we will not get to a hydrogen economy,” he said. “We cannot get to net-zero carbon without it as green hydrogen is the only net-zero energy gas.”

Temporary subsidies

Other incentives have worked in the US, according to general manager of hydrogen for Shell, Oliver Bishop. “Some of the policies that California has introduced, such as the low carbon fuel standard (LCFS) have been terrific because it has helped us get past a ‘chicken and egg’ problem,” he says.

“The problem for us as an infrastructure provider is that we need to build the infrastructure before vehicles can show up. The LCFS rewards providers for bringing capacity online ahead of the demand.”

While European and global taxpayers may find the idea of subsidising energy companies unpalatable, Bishop said these are temporary measures to kick start net-zero carbon.

“We need to share the costs as we come down that cost curve. In some sectors I can see line of sight by mid-2020s where we would not need subsidies, but some are still not affordable.

“Transportation is right at the top of affordability, but as you go right down the value chain to sectors like agricultural fertilisers, it becomes much more difficult. Very few farmers are going to be happy about a rise in costs and we need to bring them right down before we can make inroads in sectors like this.”

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Author: Che Golden