Paul Rodden • Season: 2024 • Episode: 291
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Welcome to The Hydrogen Podcast!
In episode 291, Wood Mackenzie makes a valid point to move past the hydrogen color rainbow. I’ll go through the report and give my thoughts on today’s hydrogen podcast.
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Paul Rodden
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Transcript:
Wood Mackenzie makes a valid point to move past the hydrogen color rainbow. I’ll go through the report 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 is 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 a report from Wood Mackenzie Flor Lucia De la Cruz writes over the rainbow why understanding full value chain carbon intensity is trumping the color of hydrogen. She writes Labelling hydrogen by colour is a popular way of differentiating its production process. The hydrogen ‘rainbow’ includes brown hydrogen, made using coal, and grey hydrogen, produced from natural gas. Blue hydrogen is grey or brown hydrogen produced using carbon capture and storage (CCS) to cut carbon dioxide emissions, while green hydrogen, produced from water through electrolysis fuelled by renewable power, offers the potential for near zero emissions.
As momentum builds around low-carbon hydrogen, the industry is having to look past colour labels. The future of low-carbon hydrogen hinges on governments putting in place regulations, subsidies and other incentives that are increasingly tied to the carbon intensity ‒ rather than the colour ‒ of the hydrogen produced. Calculating hydrogen’s carbon intensity is complex. For green (electrolytic) hydrogen, emissions can range from almost zero to levels beyond those of brown hydrogen. Green hydrogen is, in principle, made using 100% renewable energy. In practice, however, what is described as ‘green’ can also be produced using power from a grid that relies heavily on fossil fuels.
What’s more, hydrogen’s carbon intensity isn’t limited to its production. With over 40% of announced project capacity targeting exports, it is important to understand its full life-cycle emissions, including processing and transportation. The European Union (EU) is already using full-cycle emissions to assess eligibility for its incentives and regulatory compliance, and other hydrogen markets are likely to follow suit. But different importers may have very different incentives and standards, leading to a two-tiered low-carbon hydrogen market. The industry, therefore, requires ever more accurate project-level certification of carbon intensity as the market for low-carbon hydrogen evolves.
With the sector requiring massive levels of capital investment and subsidies to support growth in supply and demand, it is time to go beyond the rainbow and establish hydrogen’s true colours. The global hydrogen market today is around 90 million tonnes per annum (Mtpa), almost all of it carbon-intensive grey or brown hydrogen. The volume and make up of supply is about to change dramatically. In our base-case forecast, we project production to triple to 270 Mtpa by 2050, with low-carbon green and blue hydrogen accounting for 200 Mtpa of this. In a world on course for net zero emissions by 2050, that growth would have to be even faster: our Net Zero 2050 scenario (detailed in our energy transition outlook) requires 500 Mtpa of low-carbon hydrogen by 2050.
The push for better measurement of efforts to cut emissions globally is shining a spotlight on the precise carbon intensity of different sources of hydrogen supply. Because of its potential to deliver almost carbon-free hydrogen, green hydrogen is generating the most industry interest, but it is important to look more closely at the full value chains of blue and green hydrogen. In the case of blue hydrogen, emissions can come from upstream natural gas production, transportation, reforming and energy use. The bulk of the carbon dioxide emissions are produced in the reformer, which splits hydrogen out of hydrocarbons. In principle, almost all these emissions can be captured and stored. However, capturing more than 60% of the carbon dioxide from hydrogen production is costly and has yet to be proven at scale.
New autothermal reforming (ATR) technology can achieve 95% carbon dioxide capture at a lower cost. Unfortunately, the total emissions of ATR with 95% carbon dioxide capture could still be higher than for a steam methane reformer (SMR) with 95% capture, as it requires an energy-intensive air separation unit. Developers will have to evaluate the cost to emissions reduction potential of all emissions abatement options. Some developers will use renewable power to reduce the emissions from the electricity used in reforming and capture, but this must also be balanced against potentially higher costs. For green hydrogen, nearly all emissions are attributable to the electricity used by the electrolyser. In principle, hydrogen should be called green only if it uses 100% renewable power.
However, because of the variability of renewables such as wind and solar, many electrolytic hydrogen projects around the world are planning grid connection to maximise the utilisation of electrolysers and lower hydrogen unit costs. In Wood Mackenzie’s Lens Hydrogen project tracker, at least 30% of the 565 GWe of announced or operational green hydrogen projects plan to be grid connected. While projects able to secure all of their power supply from certifiable renewable sources will have negligible production emissions, this will not be the case for projects that require access to grid power.
At the opposite end of the CI spectrum, Wood Mackenzie estimate that emissions from electrolytic hydrogen produced from 100% grid power today could be as high as 50 kgCO2e/kgH2 – worse than brown hydrogen in our study – if the electrolyser is connected to a grid dominated by fossil fuels. As grids decarbonise, carbon intensity levels will fall accordingly, reinforcing the importance of regular certification of emissions from hydrogen production. It is also worth noting that electrolyser demand for clean power could also inadvertently lead to additional hydrocarbon generation to meet other demand on the grid, increasing overall emissions, especially in markets that lack rules on additionality (adding new renewable capacity alongside hydrogen production) and temporal correlation.
And so could a two tier low carbon hydrogen market emerge? Policymakers in many parts of the world are keen to avoid a two-tier low-carbon hydrogen market and have put in place a variety of different rules on additionality, temporal correlation and the geographical location of renewables.
Regulation varies significantly by country, however, and this variance risks the emergence of a two-tier market for electrolytic hydrogen. The EU has led the way, establishing the first set of rules for electricity used to produce electrolytic hydrogen, which allow grid-connected electrolysers only under very specific conditions. The US has similarly announced stringent rules for the use of grid power and renewables in electrolysers to govern eligibility for tax credits based on carbon intensity. Other major markets, such as Japan, South Korea, Canada and India, currently have less stringent rules on grid-connected electrolysers, but do require developers to have a green power purchase agreement (PPA) in place.
However, the availability and deliverability of a truly green PPA remains challenging, even in the most willing markets. In some developing economies, such as India, the rapid roll-out of renewables is struggling to keep pace with power demand growth, limiting green PPA availability for electrolytic hydrogen. In addition, markets with grid congestion face hurdles in delivering green power, despite developers having signed a PPA. In these markets, permitting some grid supply can be seen as the pragmatic approach to kickstarting the hydrogen economy. Inevitably, China will also impact the outlook for electrolytic hydrogen production. The country already has 0.3 Mtpa of grid-connected electrolysers in operation, largely based on Chinese alkaline technology.
Chinese alkaline electrolysers have lower limits of 20% to 50% to operate safely, meaning they require some continual electrical load. PEM technology, more commercialised by western OEMs, can operate at lower limits closer to 0%, allowing developers to mirror hydrogen production to renewable generation. But this comes at a higher cost. China’s role will be critical, with the country accounting for 57% of the current 45 GW of global electrolyser manufacturing capacity and an additional 15 GW planned in 2024. With China’s highly competitive electrolyser OEMs seeking to dominate the global market in a similar way to its renewables and battery manufacturers, China’s low-cost and efficient alkaline electrolysers could proliferate. This could have consequences for both for technology choices and emissions.
A significant expansion of grid-powered hydrogen projects operating on China’s alkaline technology across price-sensitive emerging economies could result in a two-tiered hydrogen market. And so what is Wood Mac’ conclusion, Labelling by colour has played its part in helping to define the various hydrogen production processes but doesn’t tell the whole story. Hydrogen carbon intensity varies by project and location – not simply by colour – and may also change over time. Efforts to minimise a project’s carbon intensity throughout the value chain will impact both its costs and eligibility for subsidies.
Developers will weigh up the benefits of building out the least carbon intense molecule that can capture premium prices against focusing solely on production and targeting lower-value markets. Buyers, too, must also go beyond production and understand the emissions of the entire hydrogen supply chain. Each project, location and supply chain has unique risks, all of which must be quantified. As demand for low-carbon hydrogen expands, it is only by understanding both projects and value chains and how these will change over time that buyers can really be sure of what they are purchasing. Okay, so a great analysis on the importance of carbon intensity and what it has when discussing hydrogen. Now, as many of you know, I am not a fan of using the color codes when talking about hydrogen generating technologies and pathways. I get the colors are an easy way to differentiate between methods.
But sometimes making something simple to understand leaves out vital qualities that need to be taken into account. And this article does a good job highlighting the differences between renewable electrolysis and steam methane reforming, but the breadth of the conversation needs to go much further including other technologies such as nuclear and geothermal electrolysis, methane pyrolysis, and geologic hydrogen. It’s also important not to discount the CI score of renewables themselves. There is a heavy carbon Bill associated with the development, transport and setup of wind and solar arrays.
So with all of that in flux, it becomes much more nuanced discussion of which hydrogen development pathway is best for any given project. And assuming one technology trumps all the others, before taking into account all variables could lead to potential projects stopping before fid even has a chance.
All right, 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 podcasts, 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@thehydrogenpodcast.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.
