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Hydrogen not the magical answer to zero-carbon prayers

Renewable energy

Hydrogen not the magical answer to zero-carbon prayers

Cost and practicality questions remain despite fuel’s undoubted usefulness

Hydrogen is the miracle fuel the world never seems to quite get round to using. In spite of periodic bursts of interest, such as in the 1970s when many hailed it as a pollution-free oil substitute, the gas has never taken off in the way its advocates hoped.

Could that indifference now be lifting? Plenty of energy experts think it should. They argue that hydrogen has an indispensable role to play if the UK, and other countries, are to reach goals to cut carbon emissions by 2050 to “net zero” by substituting for fossil fuels in some of the hard-to-decarbonise parts of the economy. These include domestic heating and transportation, as well as many industrial applications such as cement and steel where electricity may not be suitable.

The evangelists point eagerly to hydrogen’s many virtues. Not only that it burns without producing any greenhouse gases, but also its propensity to be “dropped in” to existing energy systems, such as pipes, engines and boilers, thus easing the enormous infrastructure cost of transitioning to a lower-carbon economy.

Seems too good to be true? Well, as ever, dig down and you find it’s not as simple as it sounds.

There is a reason why hydrogen accounts for just 4 per cent of final energy use at present: it’s pricey. That’s not simply because of its elevated manufacturing costs. It is also very bulky, making it cumbersome (and expensive) to handle once you’ve made it.

Much of the cheerleading for hydrogen is coming from gas distribution companies, for whom it could prove a long-term lifeline

Carbon-free hydrogen is eminently technically do-able, either by making it using fossil fuels and then extracting the carbon through capture and storage technology (so-called blue hydrogen) or by electrolysis powered by renewable energy (the green kind). But neither is likely to make it cheaper. Quite the reverse. So while fossil fuel-based hydrogen can be made for about $1 a kilogramme at best, the average existing European offshore wind farm can technically produce it at closer to $6/kg.

Let’s pause for a second to put that number into fossil-fuel focus. Take the energy content of that kilo of hydrogen and transpose it into the equivalent energy amount of hydrocarbon. That $6/kg becomes a barrel of recession-inducing $270 oil.

Of course, prices will fall through “learning by doing”. Renewable prices are continuing to tumble at quite startling speed. Last year’s Portuguese solar auctions saw bids come in at about $16/MWh, well below the $40-$50/MWh average for the most recent renewable deals. At levels like that, things become more interesting. The other moving part is the cost of the electrolysers needed to turn power into energy. They have already fallen to $1,200/KW from about $1,750 in 2014. McKinsey estimates that with each doubling of capacity, the cost of the equipment should fall by between 9 and 13 per cent.

Yet even with those efficiencies, the gold standard production cost is still likely to be about $1/kg — equivalent to $45 oil — in the long term. And that’s before any distribution costs, which make hydrogen relatively uneconomic over anything but short distances.

Given these limitations, the gas could still end up a marginal fuel once again.

Much of the cheerleading for hydrogen is coming from gas distribution companies, for whom it could prove a long-term lifeline, or big emitters such as the world’s shipping fleet. The problem, as ever, is who meets the cost of any investment in advance of demand. “Green hydrogen” can only grow at the speed of carbon-free electricity output, which remains a relatively trivial chunk of total energy production. (Alternatives to renewables, such as nuclear or natural gas with carbon capture and storage, will themselves require hefty investment).

Meanwhile, expanding hydrogen’s use into industry, transportation and heating will take gazillions of electrolysers, costing many tens of billions. No wonder industry is looking hungrily at governments for another wave of support, with taxpayer subsidies acting as midwife to the new hydrogen economy.

Politicians should be cautious. The public is already paying richly for existing green initiatives, whether in higher taxes or through elevated future prices for the essential utilities and infrastructure that we use. Not everything can be subsidised.

Governments would do better focusing on setting the overall regulatory direction, including an appropriate price for carbon, and taking steps to prevent simply exporting what remains of energy-intensive industry to more emitting countries by imposing a carbon border adjustment.

If the experts are right, and hydrogen is indeed indispensable, investment should be forthcoming. So if oil and gas companies perceive demand for the fuel, they should pay for carbon capture facilities to produce it. Shipping companies can decide whether they can operate hydrogen-powered ships economically. If they cannot, markets can adjust around them. One answer, for instance, may be less shipborne trade.

Hydrogen will play a part in a zero-carbon world where it is genuinely needed. Governments can, of course, provide assistance at the margin, supporting pilot developments, and R&D initiatives. But their most valuable contribution is not betting on technologies. It’s setting a credible and consistent policy to meet the 2050 goal.

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