Image: Countries with a national hydrogen strategy in place or under development
While the energy crisis has sparked growing interest in hydrogen, it is going to take greater policy support, driving new, cleaner uses of hydrogen in the likes of heavy industry and long-distance transport, to enable it to deliver on its potential to reduce reliance on fossil fuels, according to the International Energy Agency (IEA).
In its latest Global Hydrogen Review, published on 22 September, the IEA highlighted expected strong growth in electrolyser manufacturing and a rapid increase in the number of pilot projects for new applications, such as steel and transport, as positive signs, though did concede that they are just a “small part” of the overall hydrogen landscape. To make the most of growing momentum elsewhere, policy support is needed in the shape of auctions, mandates, quotas and requirements in public procurement to create demand, as well as requiring gas pipelines, terminals and other infrastructure to be built to be compatible with hydrogen and ammonia.
In 2021, hydrogen demand hit 94mn tonnes (Mt), climbing back above pre-pandemic levels. While much of this was driven by traditional uses, such as refining and industry, positive signals have been observed across a number of key new applications too, including a growing number of announcements for new steel projects, the first fleet of hydrogen fuel cell trains operating in Germany, and over 100 pilot and demonstration projects for using hydrogen and its derivatives in shipping. Despite positive signals, however, the IEA is forecasting just 2Mt of a projected 115Mt of hydrogen demand by 2030 would actually be from new uses.
As well as lagging behind when it comes to creating demand for new hydrogen applications, there are also issues when it comes to production of low-emission hydrogen, which stood at less than 1Mt in 2021. A project pipeline is growing at impressive speed, here, meaning production of low-emission hydrogen could rise to reach 16-24Mt per year by 2030 – 9-14Mt from electrolysis, the remainder from fossil fuels from CCUS – though meeting all government climate pledges would call for 34Mt of production each year by 2030, while a net zero emissions path would require 100Mt.
Many projects are at advanced planning stages, but just 4% are either under construction or have reached a final investment decision (FID), with uncertainties around demand, and a lack of regulatory frameworks and available infrastructure to deliver hydrogen to end users cited as reasons why.
Expanding electrolyser manufacturing capacity will be crucial to rolling out and scaling up supply chains, with renewable hydrogen already capable of competing with hydrogen derived from fossil fuels in many regions today, based on current fossil energy prices. While acknowledging that there is a level of uncertainty around how things could paly out in the coming years, the IEA found that if all electrolyser projects within the pipeline are realised, then costs could fall 70% by 2030. This would suggest that the cost of renewable-based hydrogen could be brought down to a range of $1.3-4.5/kg.
It is also possible for large volumes of hydrogen to be traded by the end of the decade – if barriers are addressed soon. Just 2Mt of hydrogen a year has actually secured a customer, or potential customer, with offtake and importing arrangements lagging behind the scale of planned exports. Repurposing natural gas pipelines for the transmission also has the potential to cut investment costs by 50-80%, but there are limitations around practical experience here, with significant reconfiguration and adaptation set to be necessary.
Therefore, to accelerate production and use of low emission hydrogen, the IEA went on to make a series of recommendations, focused on moving from announcements to actual implementation. Hydrogen technologies are now ready to scale after the work done in recent years, but the market remains nascent with its future evolution uncertain. This is discouraging first movers from reaching final investment decisions. This means governments need to focus on implementation policies to reduce risk and improve the economic feasibility of low emission hydrogen projects.
It also called for ambitions for demand creation in key applications to be raised, such as auctions, mandates, quotas and requirements in public procurement, with innovation and demonstration efforts needed alongside such action for new hydrogen applications; to identify opportunities for hydrogen infrastructure and ensure that short-term actions align with long-term plans; to intensify international cooperation for hydrogen trade, which is set to determine the development of an international market for low emission hydrogen; and to remove regulatory barriers.
It explained that while actors involved in a hydrogen market do need clear rules, applying rigid, regulatory principles in a nascent market could discourage investments. Through improving regulatory processes, namely licensing and permitting, project lead times can be shortened, with the IEA further calling for governments to work to increase the efficiency and coordination of these processes without compromising environmental standards and public consultation. It also noted that this should apply to enabling infrastructure projects, such as renewable generation and CO2 transport and storage.