he most abundant element in the universe is set to become much more plentiful in the global energy system. US fuel cell manufacturer and green hydrogen producer Plug Power raised $1bn in November to build a network of hydrogen production facilities across its ­domestic market to power carbon-free fuel-cell vehicles, factories and more. In Europe, the national leaders of France, Spain, and Germany have pledged ­billions of euros to transition their ­respective industrial centres to clean-­burning hydrogen.

Hydrogen fuel cells have long been the unconventional clean-energy alternative to traditional batteries and renewables such as wind and solar. But this year hydrogen has become perhaps the most fashionable theme in clean energy. The recent outsize investments in hydrogen signal the once-obscure energy vector is going mainstream. The remaining questions are only where all this gas is going to come from, what role it might play in our industries and economies, and whether it can be truly clean.

The recent outsize investments in hydrogen signal that the once-obscure energy vector is going mainstream

There are four ‘colours’ of hydrogen: brown, produced by converting coal into gas; blue and grey, which are generated from natural gas production; and green, which harnesses electrolysis powered by renewable energy. As one would expect, the fossil fuel-based means of generating hydrogen have generally been the cheapest. But, like much else in our energy system, that is changing.

Germany and Spain have experienced this dynamic before. Having led the cost-reduction effort for solar PV through its deployment at scale, the two countries are replicating the process for hydrogen. Between the overproduction of cheap renewable energy and the scale-up of fuel-cell transportation in China, green hydrogen is on track to achieve cost parity with its fossil fuel-based counterparts by 2030.

Achieving this would be an enormous development. Hydrogen electrolysers are a crucial bridge between the electricity sector and the $130bn/yr of hydrogen demand, which is growing at 5pc/yr. Just replacing brown and grey hydrogen would provide crucial incremental demand for electricity infrastructure, to allow it to charge less to consumers while producing hydrogen in the places that need it most.

In transportation, which accounts for 14pc of global greenhouse gas emissions according to the US EPA, hydrogen fuel-cell vehicles are already seeing massive investment in certain commercial applications.

While hydrogen fuel-cell vehicles generate power less efficiently than their battery-powered counterparts and pose unique challenges for distributed charging, they refuel much more quickly and, in certain applications, achieve considerably longer range. That makes hydrogen ideal for vehicles that make frequent short trips around a central hub, such as forklifts and delivery vans, and along predictable, heavily trafficked routes such as long-haul freight.

5pc/yr - Growth rate of hydrogen demand

Since its launch in 1997, Plug Power has built more than 38,000 of what it calls ‘fuel-cell systems for e-mobility’, including forklifts for high-profile clients such as Amazon, DHL, Home Depot and Walmart. This is, in short, a mature technology servicing a market that may be willing to pay a premium for hydrogen and could be cost-effectively turned green by 2025.

Another convincing use case is aviation. Before Covid-19, newspaper headlines encouraging so-called ‘flight shame’ meant the biggest players in this highly risk-averse sector had started exploring how hydrogen could be used to decarbonise the sector. European aircraft manufacturer Airbus—which has been putting forward a steady drumbeat of proposals to reduce aviation emissions—released a trio of hydrogen-powered aircraft concepts in September.

Shipping companies, meanwhile, under increasing pressure to slash emissions in ports and at sea, are also exploring how to harness hydrogen. Hydrogen is also being applied at utility scale as well as in smaller power generation settings. In California and Utah, and along the US Gulf Coast, electric utilities have announced ambitious plans to convert coal- and gas-fired power plants into clean, green hydrogen-fuelled generators, with hydrogen produced through water electrolysis fuelled by nearby solar and wind assets.

Perhaps the most compelling case, though, is in fuelling factories and industrial facilities. The chemicals, fertiliser, refinery and steel sectors have plenty of incentives to incorporate hydrogen. 

As research organisation BloombergNEF’s Michael Liebreich pointed out recently, each of these sectors consumes enormous amounts of power, depends heavily on shipping, and sits amid existing pipeline infrastructure that transports their products, brings crucial materials, or provides the gas for onsite electricity generation. Hydrogen, in other words, could be both a product and a feedstock of their operations, helping slash emissions in sectors that are otherwise challenging to decarbonise.

Power and industry

Some questions remain, of course. Analysts and policymakers in Europe, recognise that nuclear power should be harnessed to produce hydrogen, for example, but are arguing over when it can be labelled as ‘green’. In France, where nuclear power generates three-quarters of the country’s electricity, the proposal is generally supported; in Germany, which hopes to shutter its nuclear plants in the next two years, it is broadly opposed.

These, though, are more minor questions. What is evident is that while hydrogen has been a multi-billion dollar industry for decades, integrating it into the electricity industry can bring economic and emissions benefits to both sectors. In short, hydrogen now has a place in a decarbonisation strategy. States are competing for Plug Power’s new ‘gigafactory’ to produce 1.5GW of fuel cells and electrolysers each year—making green hydrogen the sexy new job creator of the moment. 

By Jigar Shah, President and Co-founder, Generate Capital

---

Author: Jigar Shah