25 Jan 2021

Hydrogen: the abundant solution

Zane Bezuidenhout

Equity Analyst

If there is a silver lining to be found in the COVID-19 crisis, it could be said that it has brought us a heightened awareness of the vulnerability of humanity, and so, the immediate necessity of addressing climate change.

Renewable energy offers a long-term solution. Not only that but many governments - the United Kingdom included - see it as an opportunity to mount an economic recovery from their increased indebtedness due to the current crisis.

The hydrogen economy offers opportunity as investment is necessary if we, as a species, are serious about combatting climate change.

Growing interest in hydrogen investment

All things hydrogen have captured the markets’ attention this last year. The element is abundant, unique in its properties, and offers potential solutions to many decarbonisation problems. The hydrogen economy offers opportunity as investment is necessary if we, as a species, are serious about combatting climate change.

 

However, as with any investment, that opportunity is not without its risks. Hydrogen is special because it has around three to seven times the energy density of other energy/fuel sources on a gravimetric basis (i.e. joules per unit weight). However, given that it is the lightest element, it only has 20-30% the energy density of other fuel sources on a volumetric basis (i.e. joules per unit volume). As such, the challenge (and cost) is condensing or liquefying the gas for storage and transportation.

Green production of hydrogen

Hydrogen doesn’t exist on its own so is found in compound form with other elements, such as water (H2O). There are many different types of hydrogen, designated colours termed by the source and manner of its production. This article focuses on “green” hydrogen, which is made by the electrochemical process of electrolysis.

Electrolysis is a well-known science first discovered around 200 years ago. Through this process, green hydrogen is made by using renewable electricity to split water into hydrogen and oxygen. No carbon is used, nor produced as a by-product, hence the excitement about hydrogen as a potential solution in the decarbonisation of our global economy.

Applications of hydrogen

There are many end-uses for hydrogen, the most notable of which is grid-balancing.

Renewable energy has received criticism for intermittency issues, in that the sun doesn’t always shine and the wind doesn’t always blow. Moreover, when it’s too sunny or windy relative to demand, surplus electricity is produced, which can send electricity prices into negative territory. The ability to store this excess energy for future downtimes is essential for the adoption and efficiency of renewable energy.

Massive battery parks offer one solution; hydrogen perhaps offers a better one. Simply put, it is easier to store a molecule (hydrogen) than an electron (batteries). One can produce hydrogen with surplus renewable energy, to be stored and converted back into electricity when needed.

Other applications for hydrogen include blending it with natural gas for heating, using it as a fuel source for fuel-cell electric vehicles, and in industrial processes such as refining and steelmaking. 

Hydrogen fuel cell car

The investment opportunity of hydrogen

Current hydrogen production (which is around 55 million tonnes, of which less than 1% is made from renewable energy, i.e. green hydrogen), is mainly used for refineries and agricultural fertilisers. The Hydrogen Council estimates that this could increase ten-fold, to around 560 million tonnes, by 2050. Reports from various industry bodies and reputable brokerage houses estimate that the hydrogen economy could require $10-30 trillion (yes, trillion) of investment between now and 2050, resulting in annual revenues of $2-3 trillion.

The US president, Joe Biden, in his campaigning has also committed to $2 trillion of spending on renewable energy over the next four years.

Although the hydrogen economy is in its infancy and is underdeveloped, government policies are becoming increasingly supportive. Japan and South Korea have recently committed to being net-zero carbon by 2050, while China has pledged to be net-zero carbon by 2060 with peak emissions by 2030. The US president, Joe Biden, in his campaigning has also committed to $2 trillion of spending on renewable energy over the next four years.

In the summer, the European Commission announced its hydrogen strategy as part of its Green Deal, targeting at least 6 gigawatts (GW) of electrolyser capacity to be installed by 2024 and at least 40GW by 2040 (for context, current global electrolyser capacity stands at around 1GW). And the UK government has recently announced its ten-point plan for a Green Industrial Revolution, aiming to generate 5GW of low-carbon hydrogen (including both green hydrogen and blue hydrogen, which is produced by splitting methane into hydrogen and carbon dioxide, where the CO2 is captured and either stored or re-used).

Overcoming barriers to hydrogen adoption

Clearly, the political and investment landscapes are becoming increasingly supportive of renewable energy. That said, it is a long journey with many obstacles ahead.

For one, there is a “chicken and egg” dilemma. Does the infrastructure need to be developed ahead of demand to encourage adoption or will investment in infrastructure only commence with confidence once there is a clear indication of demand? Governments have the opportunity to constructively intervene with policies providing support for businesses to proceed with investment while also providing incentives and/or penalties to encourage demand for environmentally-friendly solutions.

The technologies are ready, they simply require scaling up to bring down the costs per unit, which is often cited as a necessity for switching competitiveness. Wind and solar energy sources, in certain areas, are now as cost-competitive as the traditional fossil fuel sources. The next decade will be crucial in developing the initial scale to prove that hydrogen is a cost-effective, sustainable solution. However, we view this argument of cost competitiveness as merely a financial exercise. The reality is that, if fossil fuels properly accounted for the negative externalities posed on society, these traditional fuel sources should never have a cost advantage over sustainable alternatives.

Hydrogen investment in the UK

The UK is fortunate. Thanks to its long history of leading advancements in science and technology, the nation possesses market-leading companies with strong intellectual property and manufacturing capabilities in both electrolyser and fuel cell technologies. These companies have already received strong votes of confidence, through strategic investments, from large global corporates from continental Europe and China. Additionally, the UK stock market is home to two of the world’s oil major companies, which are undertaking a massive revamping of their respective business models to adapt to the world to come.

The UK has also set a global example by significantly adapting its energy supply to more renewable sources. These delivered over 40% of the UK’s electricity supply in Q2 of 2020, accordingly to Ofgem. This is a commendable achievement but there is more work to be done, and consequential opportunities, to achieve net-zero emissions.

About the author

To contact or read more about Zane Bezuidenhout, visit his bio here.

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