Paul Rodden • Season: 2024 • Episode: 285
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Welcome to The Hydrogen Podcast!
In episode 285, ING gives their perspective on the 2024 Hydrogen landscape and where it must develop this year to be successful. Stick with me today as it is a glorious deep dive into the global hydrogen economy of the coming year. I’ll go over the article and give my thoughts on today’s hydrogen podcast.
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Paul Rodden
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Transcript:
ING gives their perspective on the 2024 Hydrogen landscape and where it must develop this year to be successful. Stick with me today as it is a glorious deep dive into the global hydrogen economy of the coming year. I’ll go over the article and give my thoughts on today’s hydrogen podcast.
So the big questions in the energy industry today are, how is hydrogen the primary driving force behind the evolution of energy? Where’s capital being deployed for hydrogen projects globally? And where are the best investment opportunities for early adopters who recognize the importance of hydrogen? I will address the critical issues and give you the information you need to deploy capital. Those are the questions that will unlock the potential of hydrogen. And this podcast will give you the answers. My name is Paul Rodden and welcome to the hydrogen podcast.
In an article in ing.com, Gerben Hieminga and Coco Zhang write, a return to reality in the path towards scaling up hydrogen. They write efforts to decarbonize the global economy are starting to reach a turning point as the cop 28 Climate Conference reached agreements to transition away from hydrocarbons, but the potential for renewables is limited in energy intensive sectors as electrons often cannot substitute the very high temperature heat, nor are they a substitute for hydrocarbon molecules from hydrocarbons that are needed to make products like steel, plastics, pharmaceuticals and fuels for aviation shipping and trucking, carbon capture and storage or CCS could reduce co2 emissions from these hydrocarbon based activities to some extent, but does little to transition away from hydrocarbons.
Some fear that CCS might even prevent or delay this transition. Hydrogen does on the other hand, hold that promise as it is a substitute for hydrocarbons, especially green hydrogen, it can generate high temperature heat, and by reacting with a carbon source like co2, it can create the feedstock needed to make steel and plastics. So here, the author’s will share their thinking on what will happen with hydrogen in 2024. For the right the year 2023 was somewhat disappointing project developers delayed investments and earlier announced pilot projects especially for green hydrogen. It took politicians more time to work out the complex details of policies to build and scale up a hydrogen economy. Europe and Asia still face high energy prices, making the energy intensive hydrogen production and transportation process a costly business.
Finally, new expensive and unproven electrolyzers don’t get a lot cheaper in just one year, especially when pilot projects are postponed. The prices of green hydrogen still put tears in taxpayers eyes in particular in Europe. Even with proposed subsidies in the range of three euros per kilogram it fails to be cost competitive with grey or blue hydrogen.
In many cases, higher interest rates have increased rather than decreased electrolyzer costs in 2023. The anticipated learning curve for electrolyzer costs has not materialized as expected due to fewer projects that reached final investment decisions in 2023. And while wholesale power prices came down last year, grid tariffs have increased considerably in many countries. Finally, strong cost declines for hydrogen are anticipated once there is a large global hydrogen market in which hydrogen users benefit from low cost production regions. Currently, the market is still very local, especially for green hydrogen, and it will take years to develop an import and export hubs across the globe. Optimism simply might have been too high in this early stage of the hydrogen economy, a trend that’s common for new technologies.
It took three to four decades to make renewable power cost competitive with power from coal or gas fired power plants. The solar and wind industry went through major boom and bust cycles during that process. The challenge for hydrogen is to reach this stage of market maturity twice as fast and without major market setbacks, and the author’s expect a lot more realism about the scale of such a challenge in 2024. The authors also say that they’ve been stressing at Green hydrogen does not by definition lead to lower co2 emissions.
Compared to using hydrocarbons like gas. The co2 intensity of the power grid determines whether the green hydrogen is good or bad for the climate. This is very relevant as power systems in many countries still depend to a large degree on hydrocarbons. As a result, politicians have expanded a lot of effort on complex regulations to define the emission performance of hydrogen. In Europe, for example, the renewable energy directive now includes rules for green hydrogen production with renewables. Okay, I’m going to pull away from the article for just a second here because
They’re about to dive in to the three pillars. Now I’ve covered the three pillars several times in the podcast. And what they dive into is regionality additionality and time matching. And so for the sake of time, I’m just going to skip over that part and move to this next section, where the authors say the developers are likely to comply with those three guidelines, the three pillars, if they want the highest possible subsidies for their project. Apart from Green hydrogen progress in Europe is also made on defining low carbon hydrogen from natural gas and CCS, or nuclear power.
The hydrogen and decarbonize gas market package defines emission thresholds that includes standards to deal with upstream methane leakage and downstream hydrogen leakage, as well as accounting rules for indirect emissions, those being the nuclear power and energy use of CCS. This regulatory clarity could boost activity and purple and blue hydrogen purple being the nuclear source hydrogen in 2024, and the years beyond. In the United States. The long awaited guidance on the 45 V hydrogen tax credits from the inflation Reduction Act was issued in 2023, albeit in a draft form, which is likely to become final in 2024. The scheme puts less focus on the hydrogen color code, but more on emission level the tax credits can be as high as $3 per kilogram of hydrogen. If the production process results in lifecycle greenhouse gas emissions of less than point four or five kilograms of co2 of hydrogen and projects must meet similar guidelines on locality time matching and additionality.
As in Europe, the author’s expect more final investment decisions for green hydrogen projects in 2024. Because of clear guidance on the definition of green hydrogen, and requirements for policy support, a lack of guidance left project developers in the dark in 2023, which was one of the reasons that the projects were delayed, industry and academics are still split over the need for strict definitions of green hydrogen production. At this early stage of the market. Politicians clearly adopted a strict approach in order to ensure that every electrolyzer has a positive climate impact. Some have advocated for a softer approach, fearing that strict rules are a barrier rather than an enabler of green hydrogen markets.
They argue that most power markets will be almost carbon neutral from 2030 onwards, so why bother about the emissions of small pilot projects in the meantime, and their view, the main purpose of current pilot projects is to develop and produce electrolyzers not so much to produce low carbon hydrogen. The main goal for now is to build an electrolyzer industry that can produce large scale and cost competitive electrolyzers from 2030 onwards. That’s when many power grids almost entirely rely on low carbon power sources, and electrolyzers cannot produce anything other than very low carbon hydrogen. It’s also the time that power systems are in dire need of large scale electrolyzers. To absorb the vast oversupply of renewable power without electrolyzers. Wind turbines and solar panels should simply be curtailed, which is a shame and an economic loss.
So Proponents of this view have put more emphasis on the need for long term industry support to build a green hydrogen economy, rather than making sure that every pilot project results in lower carbon emissions compared to the use of hydrocarbons. The author’s also say that in their view, the industry is currently too focused on the supply side, they say yes, hydrogen producers need subsidies to produce low carbon hydrogen. Otherwise, they continue to only produce gray hydrogen. And yes, hydrogen infrastructure is needed to build out the hydrogen economy and bring hydrogen to locations where it can be used, but will it be used that will happen only if clean hydrogen solutions are cost competitive with hydrocarbon based production methods. Unfortunately, that’s far from reality.
Yet, according to their calculations, switching from gas or oil to green hydrogen, could increase the cost of plastic production by as much as 50%. In Europe, steal from Green hydrogen can be twice as expensive compared to Kobe steel, and in shipping and aviation cleaner hydrogen based fuels can be up to 10 times more expensive compared to regular hydrocarbon based fuels. Unfortunately, demand side incentives have lagged far behind support for hydrogen production, developers struggle to secure offtake agreements, which then adds to the risk of the project causing project sponsors to postpone the final investment decision.
However, this could all change in 2024 in the United States, Colorado and Illinois, have introduced a subsidy of about one dollar per kilogram for users of clean hydrogen, which in particularly aimed at stimulating hydrogen demand, and hard to abate sectors, like manufacturing, Pennsylvania has released a tax credit of 81 cents per kilogram of clean hydrogen purchased from a regional production hub. And in Europe, the EU is fit for 55 strategy and EU Emissions Trading System carbon trading scheme are starting to drive clean hydrogen demand in the coming years. Users of grey hydrogen must replace 42% of their hydrogen volume with green hydrogen under there refuel EU aviation initiative 1.2% of fuel supplied to aircrafts at EU airports must be hydrogen based by 2030. and the EU maritime initiative requires shipping companies to reduce emissions by 2% by 2025, and to pay a carbon price under the EU ETS scheme by 2026, which already increases demand for hydrogen based fuels like ammonia and methanol.
Shipping and aviation companies operate globally and can tap into the lowest cost hydrogen markets, Air France KLM and Delta Airlines signed a seven year sustainable aviation fuel offtake agreement with us based synthetic fuel producer DG fuels, made from over 800 megawatts of electrolyzers. According to Bloomberg New Energy Finance, Merced has signed the largest green shipping fuel off take contract so far through a binding offtake agreement for methanol with Chinese renewable energy developer goldwind. But a lack of transparent pricing currently is another barrier for demand and kickoff. Hydrogen offtake contracts are often bilateral, and are undisclosed to other players, the market can benefit from initiatives to increase market transparency, for example, by providing demand supply and pricing statistics. The E X hydrogen index in Germany is a good start.
Though development is still at an early stage. The authors say that they expect and hope to see more progress on the demand side and 2024 the hydrogen economy simply won’t take off without it. And increasing demand will feed into supply side again, as more hydrogen storage facilities need to be built and exploited. And lastly, the author’s talk about key developments to watch in 2020 for the first being the elections 2024 is election year in many countries, including the ones that drive the hydrogen market, such as the US and the EU. Green victories could spur development in the coming years. Populism could mean a setback, but there are six more metrics to take into consideration.
The next is transition plans of energy intensive companies sustainability investments by carbon intensive manufacturers, will they go for incremental change by first capturing emissions from current processes through CCS or adopt more radical change in which hydrogen has a larger role to play in the medium term? The next is electrolyzer technology. Some electrolyzer projects face technical issues in 2023. For example, Cineplex 260 megawatt kukula project, which is the world’s largest green hydrogen system in China is operating only 16 of its 50 to five megawatt stacks. Multiple Western brands also faced technical issues continue problems Cadore and potential investors in green hydrogen, where success stories could trigger appetite. The next is hydrogen auctions. 2024.
We’ll have multiple hydrogen auctions where project developers can bid for policy support revealed bidding prices will be a sign of where the market is heading in terms of hydrogen costs. Will hydrogen policy support be generous enough to exhaust available budgets? Or does the market need more generous support? These auctions will reveal the willingness to pay by both hydrogen off takers, project sponsors and developers strong competition might be viewed as a good sign in the short term but could backfire in the long run. If these projects turn out to be loss making, it is important to get the first projects right to build confidence. The next is policy support for hydrogen demand. Increased policy support to stimulate hydrogen use, for example, in the production of steel, plastics and fertilizers and synthetic fuels, an uptake in large long term hydrogen offtake agreements will be a sign of Progress.
Next hydrogen supply chain will all the parts of the hydrogen supply chain being renewables production, infrastructure, transport, storage and use, develop at the same pace or will parts lag and hold up the market development. success stories in the hydrogen hubs are all parties jump in enthusiastically and work together and successfully complete projects will build confidence and the last one electrolyzer trade electrolyzer shipments out of China are a sign where the other core markets can build their own electrolyzer industry. stagnant or reduce shipments could be a sign of progress, as well as increased green industry support for electrolyzer manufacturers in Europe and the US. Okay, so I know that that was a good bit more than I cover on a normal podcast, but I thought it was important to cover IMGs investment take on what 2024 could potentially bring.
And I’ll say this, as usual, the analysts focus more in depth on electrolytic hydrogen with renewable power, as opposed to so many other technologies that are applicable to today’s opportunities to evaluate the current landscape of low carbon hydrogen solutions. And I can understand why hydrocarbons are a definite source of contention when discussing energy solutions, I get it. And the analysts also point out the hyper focus on production subsidies, and the need to include offtake. Now, I’ve discussed recently as the US has initiated offtake support to boost hydrogen demand. Ultimately, what this boils down to is the timeframe, we’re looking to effectively have the transition time for hydrogen, which may not be physically and economically possible, there are so many moving parts in this economy, that to force one facet could derail every other component.
This is why I say so often that we must ensure all components of the hydrogen transition progress at the same rate, or we risk a critical failure at any of the downstream facets of the hydrogen market. The world needs the hydrogen transition, but only if we can navigate the global economics of energy distribution, we have the capabilities and the tools, and in 2024, we have the opportunity to deploy them appropriately.
Alright, that’s it for me, everyone. If you have a second, I would really appreciate it. If you could leave a good review on whatever platform it is that you listen to Apple, podcast, Spotify, Google, YouTube, whatever it is, that would be a tremendous help to the show. And as always, if you ever have any feedback, you’re welcome to email me directly at info at the hydrogen podcast.com. So until next time, keep your eyes up and honor one another.
Hey, this is Paul. I hope you liked this podcast. If you did and want to hear more. I’d appreciate it if you would either subscribe to this channel on YouTube, or connect with your favorite platform through my website at www.thehydrogenpodcast.com. Thanks for listening. I very much appreciate it. Have a great day.
