Indiscriminate use of hydrogen could slow the energy transition by absorbing renewable generation that could be more effectively deployed elsewhere, according to a report from the International Renewable Energy Agency (Irena) titled Green Hydrogen for Industry: A guide to policymaking.

“Extensive use [of hydrogen] may not be in line with the requirements of a decarbonised world, where energy consumption and capacity deployment will have to be carefully managed,” says the report. “This calls for priority-setting in policymaking.”

Two key factors in this policymaking are the technological readiness of alternative decarbonisation solutions and the potential size of local hydrogen demand.

There are alternative technologies available for heating buildings, such as heat pumps, whereas sectors such as aviation have no viable decarbonisation alternatives. It is therefore important for policymakers to prioritise sectors with no other options, the report says.

“In general, higher, continuous and long-term demand enables hydrogen production to expand” Irena

Meanwhile, concentrating demand in particular areas leads to reduced production and distribution costs, improving the economics of hydrogen use.

“In general, higher, continuous and long-term demand enables hydrogen production to expand, further reducing costs and enabling even greater use,” says the report.

Cluster growth

For this reason, hydrogen valleys or clusters are key tools for policymakers, Irena says.

The report cross-references the two factors to evaluate which technologies should be priorities for policymakers and which might be better suited to alternative decarbonisation technologies.

Chemicals, refineries, steelmaking, shipping and long-haul aviation are all suited to hydrogen, while long-haul trucks, ferries and trains are borderline cases; short-haul aviation, short-haul trucking, passenger cars and residential heating are all better suited to electrification.

However, this may change according to factors within individual countries, such as the age of industrial assets, the cost of fossil fuels and the size of particular sectors. For example, ferries in archipelagic countries might be more suited to conversion to hydrogen because of the size and concentration of the sector.

Cost gap

In sectors such as chemicals, refineries and steelmaking, where the case for hydrogen is clear-cut, the main obstacle to adoption cited by firms is the additional cost.

In the chemicals sector, green ammonia is between two and three times more expensive than grey ammonia, while green steel and green methanol are between three and four times more expensive.

Carbon pricing policies are therefore key for incentivising uptake. The report estimates that carbon pricing levels needed to cover the cost gap between grey and green products are $100/t CO₂ for steel, $200/t CO₂ for ammonia and $500/t CO₂ for methanol.

Any carbon pricing scheme, whether an emissions trading system or a direct tax, must be accompanied by carbon leakage prevention policies such as a carbon border adjustment mechanism, according to the report.

Further policies

Funding for hydrogen technologies at all stages of development will be vital, as would streamlining financial aid by creating a one-stop shop for all forms of public and private sector finance.

$100/t CO₂ – Carbon price needed to make green steel cost-competitive

And a centralised auction scheme to ensure hydrogen offtake and consumption, with the cost differential paid by a public body, can help solve the chicken-and-egg problem of creating supply and demand, according to the report. A public body would act as central auctioneer and sign long-term purchase agreements with electrolysers and sales agreements with industrial players.

“A competition-based mechanism such as an auction could prove instrumental in kickstarting the use of green hydrogen in industry,” says the report.

“If auctions are successful in reducing the cost of green hydrogen, as has been done for solar PV and wind energy, this would significantly improve green hydrogen’s business case in various industries.”

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Author: Tom Young