The green hydrogen dream and some realities

Green hydrogen — one of the buzziest buzzwords in the green family — has become something of a media magnet hese days. A few years ago the buzz was all about wind and solar but in the past couple of years green hydrogen has staked its very own claim as indispensable element of the energy transition to zero emissions.

Green hydrogen, unlike other colours of the hydrogen rainbow that involve the use of fossil fuels or nuclear power, is produced through the electrolysis of water in electrolysers powered by wind or solar, although geothermal is also an option. The argument for green hydrogen is that with this source of energy, electrolysis is virtually a carbon-free way of producing a very versatile element and energy carrier that has a star part to play in the transition.

Hydrogen is widely used in industrial processes, per the U.S. Energy Information Administration, including in metals treatment and, a lot more importantly, fertiliser production. It can also be used to produce electricity in fuel cells, and as a replacement — or addition, for now — to natural gas in power plants. Hydrogen can also be stored for later use, which the Fuel Cell & Hydrogen Energy Association is calling hydrogen energy storage because it is ultimately solar or wind power stored in the form of hydrogen, to be used on demand.

Based on these paragraphs, green hydrogen is a blessing with no disguise. All you need is to build enough wind parks and solar farms to power electrolysers and start splitting water molecules… For which you’d need water. And this is the first problematic aspect of green hydrogen production, from a cost perspective.

Two years ago, when working on a green hydrogen article for Oilprice, I talked to someone who knows and respects his hydrogen and he told me that the production of one tonne of hydrogen requires an input of nine tonnes of water. At the time, I thought this was quite a substantial input-to-output ration especially in a world where water is climbing up the list of Things We Should Worry about Running Out of Soon.

So, to really make green hydrogen a part of the energy transition we need millions of tonnes of water. This, from a common sense perspective, means that you can’t just build your solar farms/wind parks+electrolyser combos at any location. You’d need to contend with water availability, too. And you’d also need to contend with other users such as, for instance, local communities.

Yet this is not where the water problem — although I’m sure it is also an opportunity from a different perspective — ends. Because you can’t just feed any dirty old water to an electrolyser. The water that goes into an electrolyser must be purified. I happen to have a friend who is a chemistry professor and he explained that there are two ways to purify water for electrolysis: a cheap one and a fast one.

The cheap one involves electricity — that is, more electricity — to distill the water. Yet water distillation takes a bit of time. Also, water distillation appears to be a rather wasteful process that ultimately means instead of nine tonnes of input per tonne of output, you’d need double the input for the same output.T he fast one involves a sort of complicated filtering that my chemist professor friend said was too expensive to be even considered as an option at the moment. His data may well be old but additional costs are additional costs.

In case someone suspects I’m making stuff up and talking to people who don’t know what they’re talking about, here’s an academic text that treats the water consumption aspect of green hydrogen production. In short: a new source of water demand is among the last things humankind needs right now.

But enough about water and on to the bigger and more immediate problem of green hydrogen: the power source. Shell last month proudly announced the launch of one of the biggest electrolysers in the world, with a capacity of 20 MW, in China’s Hebei province. The facility will be powered by ample onshore wind capacity in the province and will be used to power fuel cells cars and other vehicles in the area.

The key part of this news is that there is already ample onshore wind power capacity in the area where the electrolyser was built. The reason this is the key part is that the element of higher raw material costs for wind and solar power will not affect the project, making it more commercially viable.

The raw material cost problem is only beginning to rear its head and I suspect it will get worse quickly especially if all those net-zero forecasters keep on cheerfully forecasting manifold increases in wind and solar generation capacity additions in the coming years and decades. Any increase in the cost of producing a solar panel or a wind turbine adds to the cost of producing green hydrogen, it’s as simple as that.

Speaking of costs, here’s what the chief executive of Siemens Energy said last October about green hydrogen and its chance of competing with other sources of energy. Speaking to CNBC, Christian Bruch said:

“We need to define boundary conditions which make this technology and these cases commercially viable. And we need an environment, obviously, of cheap electricity and in this regard, abundant renewable energy available to do this.”

Against the background of loud cheers for supercheap wind and solar, this statement sounds confusing. It stops sounding confusing when you factor in things such as intermittency and energy storage. The panels may be cheap — or used to be — but the batteries aren’t. Also the panels are no longer continuously getting cheaper.

KPMG had a similar message for green hydrogen enthusiasts in 2020. “In the short-term, green hydrogen costs are being reported in the range of 2.5-6 USD/kg H2,” the firm said. “In most cases this means green hydrogen is more expensive than both grey and blue, but at the lower end of the range it is cost-competitive with blue.”

And this is where the gas crunch comes in to make green hydrogen a viable alternative to the other colours. With the price of natural gas soaring, the price of green hydrogen stops looking so high and its commercial viability changes completely. Of course, this only holds true until gas prices stay high, which won’t be forever but, proponents would say, neither would high raw material prices.

On this, I’m not so sure. The extraction of natural gas, while still sporting some margin for improvement, uses a well-established tried and tested technology, so costs don’t really have that much higher to go. The extraction of metals and minerals to use in solar farms and wind parks is also done using tried and tested technologies… that would need to be improved immediately to secure all the metals and minerals the future solar and wind industries would need, based on those cheerful forecasts I mentioned above.

In this context of rising costs, one might wonder why companies such as Shell and, to a much greater extent, France’s Engie, are pouring billions into green hydrogen. The answer is simple: the cost pressures are no uniform. Engie is focusing on the Middle East, where, first, there is an abundance of solar power potential pretty much everywhere, second, water desalination is a part of life and one might imagine cheap as a result, and the geography is not particularly challenging for solar farms and wind parks.

In the Middle East, then, green hydrogen seems like it has a bright future. But in the present, it is still above $2 per kilo, per S&P Platts data. In Europe, based on 2020 calculations, green hydrogen costs between $3 and $6.50 per kilo. EC President von der Leyen notably said last November, "Because of the current rise in gas prices that we see, green hydrogen today can even be cheaper than grey hydrogen." But, again, this won’t last forever, so the EU is looking for ways to bring the cost down, a lot further down.

It may be that the latest forecasts about how green hydrogen will become competitive with other sorts of hydrogen by 2030 are based on the assumption of persistently high natural gas prices, just like they are based on the persistently low prices of raw materials. Naturally, both assumptions are risky ones as all sweeping cost assumptions tend to be and as actual facts have proven, but this does not mean that green hydrogen has no future at all.

China is being serious about it but it also looks like it is being realistic about it. Here’s another recent news report, about the world’s biggest electrolyser. At 150 MW, the alkaline electrolyser will be powered by a 200-MW solar farm but, and this is an important but, “Despite claiming to be a solar-powered green hydrogen project, the Baofeng facility might also be run using grid electricity when the sun is not shining.”

China has received a lot of grief for being one of the biggest emitters in the world, among other things. But China seems to be taking a path to emission reductions that others might consider learning from. The country is the biggest investor in wind and solar. It is also the biggest investor in coal power in what seems like a pretty realistic approach to the whole energy transition affair.

The Baofend hydrogen facility is yet another example of this approach: it’s great to have solar farms produce electricity for splitting water into hydrogen and oxygen but when the sun goes down, the electrolyser needs to keep running so we’ll feed it from the grid.

If demand for hydrogen booms the way forecasters say it will boom in the coming years, now may be the time to plan for it in a way that would minimise the risk of shortages. If, that is, decision-makers have retained some semblance of the ability to learn from previous mistakes. Because, you know, Europe is already short on storage capacity for hydrogen because, well, not to put too fine a point on it, hydrogen takes up a lot of space, even compressed.