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ESG Focus: The Green Hydrogen Prospect (Part 2)

ESG Focus | Dec 16 2022

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FNArena's dedicated ESG Focus news section zooms in on matters Environmental, Social & Governance (ESG) that are increasingly guiding investors preferences and decisions globally. For more news updates, past and future:

ESG Focus: Green Hydrogen Is Big – Really Big

It's big – really big – so FNArena takes a deep dive into the global markets for green hydrogen, ammonia and fuel cells; checks out green hydrogen's role as an energy security play; and outlines the global developments and incentives making green hydrogen immediately cost competitive.

-The green hydrogen market
-The new energy security play
-Green ammonia markets
-Fuel Cell markets
-Global developments and incentives
-Regulators turn focus to offtake markets
-Getting greenwashing out of the way

By Sarah Mills

Part 2 of FNArena's series on green hydrogen examines the clean hydrogen market, its context, prospects and global developments, focusing primarily on green hydrogen, and will be followed by an article on the Australian market and a final instalment on green steel.

Green Hydrogen Market Ready To Scale

Rising energy prices combined with the advent of government regulations and subsidies, and big-capital support, suggest that the green hydrogen market is ready to scale, which should have a massive impact on energy markets this decade.

Post the energy squeeze, the introduction of carbon imposts and tax credits in many countries has made green hydrogen immediately cost competitive against hydrogen produced from fossil fuels. 

Green hydrogen is now cheaper than fossil fuel-based hydrogen in Europe, the Middle East, Africa and China, according to Bloomberg NEF. This is also the case in the US following the introduction of generous tax credits.

Australia, one of the few major contenders not to have governmental imposts on carbon or subsidies for renewables, is a laggard.

Grey hydrogen, coal and gas are the major disruptees. 

While the commitment to green hydrogen is undoubted, some doubt the speed of its implementation, given the world is prioritizing electrons from renewables sources as an alternative to fossil fuels.

They believe diverting electricity from those sources, to fire anything other than the grid, is a big ask, and the pace of green hydrogen’s growth depends greatly on the size of investment in renewable technology. 

As we mentioned in our previous story, green hydrogen, without a carbon price, is unviable. 

It is also unviable without a massive investment in renewables, which highlights the size of the renewables prospect.

Demand For all Hydrogen Is Forecast To Remain Strong

Grandview Research estimates the size of the global hydrogen market in 2021 sat at US$129.85bn. This comprised 75MtH2/year of pure hydrogen and 45MtH2 in mixed gases.

Grandview expects the market will post a compound annual growth rate of 6.4% from 2022 to 2030, driven by demands for cleaner fuel and regulations to reduce sulphur in petroleum products. PWC expects the market will hit US$263.5bn by 2027, pending transition impacts. Astute Analytica projects a figure of US$286.789bn

These many and varied forecasts base their estimates on the premise that global electricity demand is expected to contribute to nearly two-thirds of hydrogen market demand this decade. Global green hydrogen deployment is forecast to hit 150GW by 2030.

Just to give readers a sense of wildly disparate numbers flying around at this stage of the market’s development, Grandview estimates a compound annual growth rate of 39.5% and PWC estimates a 10.5% CAGR between 2022 and 2027, and GM Insights expects the market will post a compound annual growth rate of 60% going forward. 

The main uses of hydrogen tend to be refining petroleum, treating metals, fertilizer production and food processing, all of which are likely to have disparate futures going forward.

Wood Mackenzie predicts the capital costs of green hydrogen will plummet this decade.

According to Reuters, the average price of green hydrogen prior to the war in Ukraine was US$3.50/kg to US$5.80/kg (green energy prices tripled in 2022). 

The price needs to fall to between US70c/kg and US$1.60/kg to be cost-competitive with fossil fuels. In order to do this, the price of electricity needs to be below A$50MWH.

Rethink Energy conservatively forecasts the total cost of green hydrogen to be $1.54kg by 2030, comprising electricity (90c/kg); capital expenditure (27c/kg); water (22c/kg); and operating expenditure (14c/kg).

Indian industrialist Mukesh Ambani expects hydrogen costs will fall to US$1/kg in 10 years.

IEA Points To Mega-Growth

The International Energy Agency reports there are more than 100 pilot and demonstration projects for using hydrogen and its derivatives in shipping. 

In the power sector, the agency predicts hydrogen and ammonia projects will total almost 3.5GW of potential capacity by 2030.

The agency projects demand could hit 115Mt by 2030 (an 11,400% increase), with less than 2Mt coming from new uses. 

This compares with 140Mt (25% from new uses) needed to meet climate pledges and the 200Mt needed by 2030 to meet net-zero by 2050.

The IEA estimates that if the existing pipeline of projects is realised, low-emission hydrogen could reach 16-24Mt a year (a 2,300% increase). 

Add new projects to the mix and that spells massive growth. 

The New Energy Security Play

The Ukraine conflict has also positioned the fuel as an energy security play, which slightly boosts its prospects as a hedge in the event of renewables sabotage.

This was highlighted by China’s recent squeeze on polysilica supplies through covid lockdowns, a critical input into solar cell manufacture, before and during the Ukraine conflict.

McKinsey & Company says the Ukraine conflict spurred more than 680 large-scale hydrogen project proposals valued at US$240bn, (only $22bn of these have reached final investment decisions this year). 

But analysts believe 2022 will be the second and last year of the polysilicon shortage as nations on-shore manufacturing as a national security priority.

Polysilicon production capacity is expected to triple over the next three years, but the memory of the squeeze will live on.

Green hydrogen is likely to experience its first leg-up in Europe, which is committed to providing a critical zero-carbon alternative to Russian Energy. 

Public and private sectors are making big commitments to advance new hydrogen production technologies and infrastructure.

This in turn will fire growth in renewables infrastructure, a prerequisite for green hydrogen. 

It will also fire the market for electrolysers, stacks and other components (although we precis this with the acknowledgment that catalytic technologies could easily do electrolysers out of a job by the end of the decade).

Global Developments Backing Green Hydrogen Market

Globally, governments have been regulating to pave the way for green hydrogen, not just as a back-up for grid energy but as the building block of a hydrogen economy.

While green hydrogen does not begin to compete with a renewables and battery economy, there are those that harbour greater ambitions for the fuel, and this battle is likely to be the main focus in an ESG world post 2030.

Goldman Sachs notes thirty nations now have national hydrogen strategies and roadmaps pledging government support for the industry.

These include Germany, Japan, China, Australia, United States, Norway, Canada and France. 

Already, hydrogen clusters are emerging in Europe and around the world, and the largest qualify as “hydrogen valleys”. 

In all, 24 governments, collaborating with Mission Innovation, have identified the need for 100 hydrogen valleys worldwide, as of September 24.

Estonia, for example, in June claimed to have developed the world’s first nationwide hydrogen valley, to be completed in six years. South Australia’s hydrogen hub also appears to be a candidate.

Developments In Europe

In September, the European Commission announced plans for a Hydrogen Bank, throwing E3bn into the kitty as a starter.

The EC’s Fuel Cell and Hydrogen Joint Undertaking has been in place for the best part of a decade.  

This is a plan to accelerate the adoption of fuel cell vehicles in Europe and by definition supports development of supportive hydrogen infrastructure for the fuel-cell vehicles.

In November 2021, it came under the auspice of the European Partnership for Hydrogen Technologies, and a spate of agreements have been signed with key organisations in the final four months of 2022.

Roughly E330.5m was made available for research proposals in 2022, ranging from areas such as strategy, hydrogen valleys, cross-cutting, heat and power, transport, hydrogen storage and distribution and renewable hydrogen production.

In May, the REPowerEU initiative set a production of 10Mt by 2030 and an extra 10Mt by 2030, based on the EU’s increase in its renewable target to 45% by 2030.

Developments in the US

The United States, like many other countries, aims to lead the global green hydrogen economy.

The United States Inflation Reduction Act (backed by US$369bn) is expected to fire investment in the industry over the next couple of years. 

All up, it includes US$400bn in spending, and plans to garner $700bn in revenue. The package includes many generous tax credits. 

Tax credits of US$3kg for 10 years for green hydrogen manufacturing are considered to be a game-changer for the industry. 

The credits reduce the cost of manufacturing by up to 75% and make green hydrogen immediately cost-competitive against hydrogen produced from fossil fuels. 

The key input to green hydrogen, renewables, has been granted a 30% Investment Tax Credit.

Observers say this will make green steel cost competitive, spurring investment in decarbonisation.

Despite starting from behind, the US has a natural advantage in hydrogen storage, given it has many old coal seam gas wells, mines and caverns (although there are other countries with similar advantages). 

The challenge for the country is establishing hydrogen valleys, or broader clusters at these storage sites.

In June, the agency announced that it will provide US$8bn to establish at least four Regional Clean Hydrogen Hubs in the country, through the Bipartisan Infrastructure Law (it is important to note the “clean” vs “green” distinction – the country is favouring green but is seeking to diversify its energy sources).

One hub will be blue hydrogen (carbon capture), another pink, and one from renewable energy.

US start-up Green Hydrogen International announced a 60GW renewable project in South Texas powered by wind and solar in March. 

At the time, it was billed as the world’s biggest green hydrogen project, demonstrating just how quickly things can change within a year. 

Prior to that, the Western Green Energy Hub in Western Australia (50GW) held that mantle, and now it appears China has it.

The US project uses a salt cavern for storage, and also produces rocket fuel for Elon Musk’s SpaceX (which takes us to another interest observation regarding methanol – in that SpaceX is developing a rocket engine using cryogenic liquid methane and liquid oxygen, to replace kerosene).

Developments In China

Similar to the US, China’s clean hydrogen strategy is energy agnostic.

The nation’s push into green hydrogen will be largely from state-led and state-owned enterprises, and public-funded R&D centres are all a-flurry ahead of what is expected to be a massive ramping up of the industry.

Observers expect Europe’s market leadership will shrink as China gains its sea legs but it is understood the country lags Europe, the US and Japan in advanced technology. 

China has already pumped the equivalent of hundreds of billions of US dollars into the industry and this is expected to escalate. The country expects to have systems and policies in place by 2025.

According to Statista, as at April 2022 China boasted the greatest number of fuel stations of any nation, at the modest level of 250. 

China is also the world’s largest producer of hydrogen (about 85% is grey) and consumer of hydrogen, so has a strong interest in market developments.

Japan has the second largest number of refueling stations with 161.

China’s Sinopec is building the world’s biggest factory for green hydrogen plant in inner Mongolia, powered by a 300MW photovoltaic plant which is expected to come on line next year, producing hydrogen at US$2.67kg.

Hydrogen-powered vehicles are included in the nation’s list of “new energy vehicles”, or NEVs. 

Geopolitical challenges and intellectual property issues could prove a stumbling block for China and companies still have to partner with Chinese companies to gain access to the market.

Developments in India

India unveiled its green hydrogen strategy in February. The country plans to produce 25m tonnes a year by 2047 but expects this number could rapidly be revised up.

In India, Adani Green Energy owns and operates one of the world’s largest solar photovoltaic plants – the Kamuthi Solar Power Project. It also uses renewable biogas to produce green hydrogen.

The company recently signed with TotalEnergies to invest more than $5bn in a green hydrogen project – a 2GW hydrogren-producing electrolysers farm powered by a 4GW solar and wind farm (again highlighting the uptick in renewables infrastructure and the likely support this offers for metals markets over the next five years).

The state-run Indian Oil Corporate announced it would partner with ReNew Power, and engineers Larsen and Toubro in a project.

Industrial Mukesh Ambani has also outlined his hydrogen ambitions.

The United Kingdom

UK has doubled its commitment to low-carbon hydrogen to up to 10GW by 2030, subject to affordability and comparative value, with half coming from electrolytic hydrogen.

It has set aside GBP240m GBP for the Net Zero Hydrogen Fund. GBP100m of this is expected to be allocated before March 2025.

The  country expects to establish a hydrogen certification scheme by 2025.

Norway’s Equinor is building a blue hydrogen plant in Northern England.

The nation has established the GBP289m Industrial Energy Transformation Fund in England, Wales and Northern Ireland, which plans to decarbonise electricity system by 2035 subject to security of supply.

The nation is trialling hydrogen for heat production in village trials in England, a project most pundits doubt will fly.

It is also examining hydrogen transport options, including buses and refuelling infrastructure.  

Our Corner Of The Woods

Meanwhile, the Asia-Pacific has been nominated the fastest growing green hydrogen region following the announcement of large-scale green hydrogen projects in Australia and Japan.

Ammonia’s Prospects Green Up

Ammonia production represents 20% of the total current hydrogen market.

Ammonia is a carbon-free fuel, hydrogen carrier, and energy store.

Its production currently accounts for 1.8% of global carbon dioxide emissions, so demand for green ammonia is high.

According to Grandview, the global green ammonia market in 2021 totalled US$44.04m.

It is expected to expand at a compound annual growth rate of 127.9% from 2022 to 2030. 

Its main uses are expected to be in transportation and shipping and freight. Some forecast that it will be used in internal combustion engines, generator sets, industrial furnaces and fuel cells.

The Asai-Pacific market is expected to expand at a CAGR of 140.6% by 2030 and it is expected to become a commodity chemical by 2040.

The industry is much better positioned than most to benefit from the transition, given its role in hydrogen storage and transport. 

As it stands, ammonia is only the viable option for hydrogen transport and is considered the best form of storage. Ammonia remains in liquid form at -33 degrees Celsius, compared with -161C for LNG, making it easier and cheaper to store and handle.

This also highlights the problems associated with some plans to undertake expensive retrofits for existing LNG infrastructure to store hydrogen – not very prospective.

For the medium term, green ammonia’s future is assured as both an energy carrier and fertiliser, and in other applications. But it is highly toxic, suggesting innovators will turn their eyes towards other options over time. 

In shipping, for example, an ammonia scrubber is needed to remove nitrous oxide emissions. In this respect much depends on advancements in catalytic technologies.

The global big guns in ammonia include BASF SE, Yara International, ThyssenKrupp AG, andIT Power Plc.

The Electrolyser Market

A jump in green hydrogen production equates to a jump in electrolyser production and analysts expect the market will scale up ten-fold.

When it comes to electrolysers, Europe holds a dominant share of revenue at roughly 49%, while China holds about 35% of the world’s manufacturing capacity and is the largest producer, although Europe’s manufacturing capacity exceeds that of China.

In Australia, Fortescue Metals Group ((FMG)) through its Fortescue Future Industries is building the world’s biggest factory for electrolyser machines.

The electrolyser market was valued at US$390.4m in 2021 and is forecast to grow from US$416.8m in 2022 to US$619.6m in 2029, according to Fortune Business Insight. This represents a compound annual growth rate of 5.8%.

About 95GW of hydrogen electrolyser projects are in the pipeline, a quarter of the current global total.

The International Energy Agency estimates that if all goes to plan, the cost of electrolysers could fall by roughly -70% by 2030.

Electrolysis equipment has already fallen -40% in past five years. 

It is important to note that in the medium term, electrolysers, one of the most expensive inputs in green hydrogen front, are facing stiff competition from innovation.

There are many technologies in the pipeline, particularly by way of catalysts, that are likely to affect the electrolyser market.

Start-ups in the water-based electrolysers market promise to bring the price of hydrogen down to less than 85c a kilogram, and some catalytic technologies are attempting to bypass electrolysers altogether.

Given the relatively small dollar value of the electrolyser market, the main game here is for technologies that drive the lowest hydrogen prices. 

The lowest-cost green hydrogen producers have better prospects for emerging as global leaders.

Hydrogen Fuel Cell Market

According to Precedence Research, the global hydrogen fuel cell vehicle market sat at US$0.65bn in 2021, and is expected to rise to US$43.19bn by 2030, representing a compound annual growth rate of 59.4% between now and the end of the decade.

The State of California has been one of the biggest supporters of hydrogen fuel infrastructure for some time and has launched several supportive initiatives.

As noted in previous articles, the most prospective market for hydrogen fuel cells, at least this decade, is in the long-haulage and aviation markets.

Major Hydrogen Companies

It is a bit difficult to put a finger on this, given many companies are specialising on different parts of the energy chain, such as fuel cells, electrolysers, or grid stability.

As at November, Yahoo comprised the following list: 

-FuelCell Energy
-Linde plc
-Shell plc
-Reliance Industries
-Plug Power
-Adani Green Energy
-Air Products and Chemicals Inc

Clearly energy companies such as BP and Sinopec, and others such as Fortescue Metals also have strong ambitions in this market.

Air Products is developing several hydrogen megaprojects around the world including $5bn to produce renewable hydrogen in Saudi Arabia.

Some surmise that industrial gas firms could become the first supermajors of the hydrogen era.

Offtake Markets

The main challenge now is offtake.

Short-term demand will be met by refining ammonia but even if all current ammonia demand were switched to low-carbon hydrogen, it would only increase the consumption just more than 5Mt, according to most estimates.

The extra 15Mt demand comes from new sectors switching to hydrogen. 

With offtake and importing lagging production, the IEA believes international regulation will be required to fire demand, and regulators are expected to shift their sites to these markets in the next couple of years.

The IEA says auctions, mandates, quotas and requirement in public procurement are needed.

Strategic offtake partnerships are being signed all over the world in anticipation – many are non-binding memorandums-of-agreement (just in case pricing and regulation disappoint) — but big capital is poised to jump.

Technologies are now ready to scale. Water-treatment companies, brewers, dairy firms, power plants, steelmakers and abattoirs are all considered prospects. Hydrogen boilers and hydrogen-ready industrial equipment will likely be among the first cabs off the rank.

Bloomberg reports technology from an Australian start-up Star Scientific is being piloted at a Mars Inc factory and expects regulatory approval in 2023.

The first fleet of hydrogen fuel cell trains have started operating in Germany, and Germany also plans to open hydrogen refueling stations.

Getting The Greenwashing Out Of The Way

Nuclear energy could benefit from the shift to clean hydrogen to the extent that reactors can create pink hydrogen (hydrogen produced through electrolysis fired by nuclear energy) and provide grid stability out to the medium term.

But while proponents say the demand for clean hydrogen could open new markets for nuclear plants, it is broadly acknowledged that nuclear energy is extremely expensive and only operates with massive subsidies. 

So while in the near term to medium term, a market may exist; as the cost of green hydrogen falls, so will the prospects of pink hydrogen, unless the nuclear waste problems are addressed and the economics improve sharply.

According to, clean hydrogen prospects that involve mixing green hydrogen with gas are something of a red herring given green hydrogen when combusted produces nitrogen oxide emissions six times that of methane, and NO2 emissions are a recognized health hazard.

Green hydrogen is only emissions-free if it is converted to electricity electro-chemically with only water and oxygen as by-products. 

A fuel cell typically uses an electrochemical reaction, not combustion. 

"Even the Trump Administration’s Department of Energy “Hydrogen Program Plan” identified H2 combustion as a significant problem," says the website.

So while there appears to be significant backing for the idea, at this stage, it doesn't stack up.

Similarly, cracking of ammonia that involves high temperatures could be problematic, although decomposing over a catalyst would release non-toxic nitrogen. 

Ammonia to hydrogen technologies are improving but are unlikely to outpace renewables any time soon.

Blue hydrogen, as mentioned in a previous article, is not favoured given it uses LNG, and is highly dependent on a company's ability to securely store carbon dioxide, while having the infrastructure in place to transport the resulting hydrogen.

FNArena's dedicated ESG Focus news section zooms in on matters Environmental, Social & Governance (ESG) that are increasingly guiding investors preferences and decisions globally. For more news updates, past and future:

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