The world cannot afford to wait for the expected government support to drive down costs, but there is another way, says the European Green Hydrogen Accelerator Centre’s Carina Krastel

The alkaline water electrolysis module developed by Thyssenkrupp Uhde Chlorine Engineers.

Given all the recent media coverage and hype around the use of hydrogen as a decarbonisation tool, the casual reader would be forgiven for thinking that green H2 was already widely available at an affordable price.

But the truth is that it barely exists today.

Of the 90 million tonnes of hydrogen produced in 2020, only about 0.03% came from the electrolysis process — which uses electricity to split water molecules into H2 and oxygen — according to the International Energy Agency’s recent Global Hydrogen Review. And the IEA was unable to say how much of that electrolytic hydrogen — from 300MW of electrolysers installed worldwide — was powered by renewable energy and therefore “green”.

And while there are hundreds of gigawatts of green hydrogen projects in the global pipeline, only small handful of pilot-scale facilities have reached financial close.

There is a good reason for this. Green hydrogen is more expensive to produce than the grey H2 made from unabated fossil fuels that makes up the vast majority of the global supply.

In other words, today’s users of hydrogen — mainly ammonia and chemical producers and oil refiners — would increase their costs by going green. Other potential uses, such as a fuel for transport, heating, or heavy industry are all more expensive than existing alternatives, including electric vehicles and heat pumps.

The general consensus is that government subsidies will be needed to drive green hydrogen production in the short to medium term, with economies of scale eventually leading to falling costs — in a similar way to what happened with wind and solar power.

But according to the commercial director of a public-private partnership working to accelerate the production and uptake of renewable H2, the climate crisis means the world does not have the luxury of waiting for that to happen.

Carina Krastel, of the European Green Hydrogen Acceleration Center (EGHAC), tells Recharge that government support will help to scale up renewable H2 production and push costs down, “but it will happen slowly because we have a limited amount of resources when it comes to subsidies”.

She points out that it took about 20 years for solar power to go from initial government subsidies (in Germany in 2000) to become the cheapest form of electricity production in many parts of the world.

“That’s the problem, we don’t have 20 years. We have ten years,” she says. “We need to go faster.”

EGHAC — part of EIT InnoEnergy, the EU’s clean-energy innovation organisation — was set up in November 2020 to provide support and investment to companies that will help create a commercially viable green hydrogen industry in Europe.

“What we believe is that we should not build an economy based on subsidised thinking — we should create a market pull,” says Krastel.

One of the main reasons that green hydrogen projects have not reached financial closure is that developers — and financiers — need to be certain that the relatively expensive H2 being produced will be sold at a high enough price to make projects profitable. This requires off-take contracts to be signed with users willing to pay the premium for green hydrogen.

Krastel believes that there are plenty of climate-conscious companies that would be willing to pay such a premium — including food producers that use hydrogen-based ammonia fertiliser — but project developers do not know who they might be.

“No-one has done this exercise to bring together the value chain, because it’s too complicated,” Krastel explains.

EGHAC’s main focus has been to find those willing end users, match them up with project developers and others in the value chain (such as ammonia fertiliser producers) and encourage them to create commercial joint ventures that both produce and use the green hydrogen — with investment from EGHAC itself.

This ensures that all the H2 produced will be bought by a guaranteed off-taker, which eliminates most of the project risk and makes them much more attractive investments for banks or other funders.

“We’ve already done this in steel with a project called H2 Green Steel,” Krastel points out.

To extract iron from iron ore, steel producers have long used coke (derived from coal), which provides the high-temperature heat required and is simultaneously the agent that removes oxygen from the ore. The only viable green alternative to coke, at present, is hydrogen, which can be used in a process called direct reduction or DRI (direct reduced iron).

H2 Green Steel (H2GS) is a company set up in 2020 with an aim of producing steel using green hydrogen in northern Sweden as soon as 2024, with an annual production capacity of five million tonnes by 2030.

H2GS attracted €105m of Series A funding from “a broad range of strategic partners, customers and financial investors”, including Mercedes-Benz and truck maker Scania.

Krastel explains that one tonne of DRI-derived green steel — roughly the amount used in a car — would cost approximately €100 more than coke-derived steel, which is negligible in a €30,000 vehicle.

“And that’s the logic we’re trying to follow for all the different value chains we’re looking at, such as [ammonia] fertilizer and methanol [derived from green hydrogen],” says Krastel. “So what is the premium at the end product that you’re paying and who can be the one passing it onto the end customers?”

She points to shipping giant Maersk, which is planning to build 12 methanol-powered shipping container vessels.

“Maersk knows that they can pass [the extra costs] on to the end customers, for example, an Amazon or a Nike — those guys that actually buy big logistics solutions.

“We believe you can really make business models fly today, especially for the first ones, taking a venture-building approach and taking this value-chain approach where the end customer is willing to pay. And the important thing here is, you need to find those front runners. Who are the front runner companies that are going to commit to something like this?”

“There are various cases where I can see this working, but there’s also a lot of cases where it probably won’t work because you don’t have the huge scale where a slight addition works out as a tiny part of the overall price.”

However, identifying and contacting those end-use companies that might be willing to pay a premium for cleaner products or services isn’t easy.

“It’s a pain because people [in the energy sector] don’t know those guys,” says Krastel.

“I’m trying to get in contact with food companies [that use ammonia fertilisers], for example, they’re not at all in my network. Everything is through summits, through consultants, trying to get in contact with them. But once you create this link, they’re, like, ‘oh, you can work on renewable fertilizers, that’s interesting, we didn’t know that’.”

Krastel believes that many green hydrogen developers, and even certain governments, are failing to see the importance of identifying and securing buyers of renewable H2.

“I’m really happy that there’s these huge goals of the European Union, and many of the members states on hydrogen,” she says, “but they see hydrogen as a goal — [the European Commission wants] 40 gigawatts of green hydrogen by 2030 — but to do what? What’s the meaning behind it? We want to decarbonise industrial processes and decarbonise products. That’s the point. And that’s what we’re forgetting.

“Yesterday, I saw a project in Spain. They’re, like, ‘we have great solar resources, we have a connection to the [gas] pipeline. We’re going to build a hydrogen plant’. But to do what? Are we going to eject it in the gas grid? Yeah. But to do what? Who’s going to pay for it? I think 90% of projects are a bit like this. It’s self-defeating.”

source: https://www.rechargenews.com/energy-transition/how-to-make-expensive-green-hydrogen-commercially-viable-today-without-subsidies/2-1-1142848

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