Observers are unanimous that the hydrogen economy is approaching take-off as low carbon hydrogen is now accepted as a key vector to decarbonize hard-to-abate sectors like chemicals, heavy industry, shipping and aviation.
Although there is a trillion-dollar distance between confirmed projects and the scale of deployment required by 2030 to meet net zero. The billions of dollars of investment recently promised in a flurry of MOUs signed over the past two years are increasingly passing Final Investment Decision.
But two things are helping the industry move out of nascency, and are offering a promising pathway for future international trade.
Keys to the bus
The first is the humble municipal bus. Buses are slowly being recognized as an unexpected catalyst for the hydrogen industry.
Hydrogen has been challenged by bankability. It is still a fledgling industry that suffers from an illiquid market.
Unlike conventional fuels, which are traded as commodities at prices set by global markets, hydrogen developers need to orchestrate the full value chain to prove investment worthiness. That includes land procurement, energy sourcing, Engineering, Procurement, and Construction expertise, electrolyzer technology, storage facilities, transport to demand centres, and critically, securing a long-term off taker.
This last point has been a stumbling block for developers, and therefore banks, since it’s hard to convince a buyer to sign a long-term contract at today’s prices knowing that costs will fall dramatically in the coming years.
It’s even more challenging to find an offtaker that can incrementally scale demand over time. Despite gigawatt-scale announcements, the reality in most cases is that hydrogen producers will bring online five then twenty then a hundred megawatts of production over several years. Coordinating demand that sops up that stepwise supply is difficult.
If demand can be incrementally scaled as new supply comes online, it helps to unstick this log jam. Buyers won’t be locked into huge volumes at high prices from day one, and can instead secure supply each year at prevailing prices as innovation brings costs down. Producers gain confidence that their future supply will find a buyer.
Bus fleets represent a great match for this market dynamic. They can grow from 10 to 50 to 200 units over time and consume supply stepwise as it grows. Very roughly, a 1MW electrolyser produces enough hydrogen for about 20 buses each day. The filling, storage and transport infrastructure that buses unlock would serve to open up hydrogen for heavy goods transport, another potential early adopter.
Governments also tend to influence public transit procurement decisions. Given the importance of hydrogen from an economic diversification and public policy perspective, governments can take an active role in encouraging the transformation of their bus fleets, or those under the control of devolved municipalities.
Creating off takers for small scale supply boosts bankability and creates a virtual circle of technology proof points, risk reduction, and skills and supply chain development, which in time enables medium and large scale projects to flourish.
Flying for export
The second element concerns synthetic fuels. In the medium term, when hydrogen production is vast, the challenge of cheaply moving hydrogen to demand centres becomes more acute. Pure hydrogen is notoriously hard to transport. Derivatives like ammonia or metal hydride carriers face their own challenges, especially in terms of total energy balance.
Hydrogen’s export value may therefore derive less from the molecule itself, and more from the low carbon products it can be used to create. That includes not only green fertilizer, green steel, and lower carbon chemicals, but also synthetic fuels.
While large scale e-fuels facilities are still climbing through technology readiness levels, they represent the most viable low-carbon pathway for some industries, especially aviation. Synthetic fuels that combine hydrogen with carbon dioxide or carbon monoxide are a circular carbon economy approach to flying that avoids land-use issues that plague bio-based sustainable aviation fuels.
Jet fuel is relatively easy to transport and is already a big international export, including for Gulf countries. Using hydrogen to decarbonize aviation represents a new economic diversification opportunity, and avoids costly retrofits of existing plant and equipment for industries like steel. Ultimately, the products made by low carbon hydrogen stand a good chance of being hydrogen’s global climate contribution, rather than hydrogen itself.
Jeffrey Beyer
Founder and Managing Director, Zest Associates