There is a joke about hydrogen that has been doing the rounds for close to three decades now. It goes something like this: Hydrogen is only 10 years from commercialization. But then, it has always been 10 years away from commercialization. I believe this barb has outlived its relevance.
Why am I convinced that hydrogen has finally arrived? Chalk it down to a recent cross functional study on the ‘Future of Hydrogen Economy’ commissioned by, MarketsandMarkets which revealed some surprising (and not so surprising) findings about the opportunities and challenges linked to hydrogen commercialization.
Here are some key highlights from the study:
Upstream – Spoilt for Choice
Upstream hydrogen generation reminds me of one of my favorite songs: Mambo No. 5, albeit instead of a little bit of Angela, Pamela, Sandra and Rita, you have a little bit of gray, blue and green hydrogen. Of these, gray hydrogen is the most widely produced because of its cost effectiveness and widespread availability. In 2022, around 88% of hydrogen (by value) was gray hydrogen, underlining global dependence on this carbon-intensive production process. By 2035, low to zero-carbon emitting blue and green hydrogen are expected to pick up pace and comprise about 22% of total hydrogen production.
The global hydrogen generation market is expected to grow from USD 159.5 billion in 2022 to USD 334 billion by 2030. Asia Pacific currently dominates, led by countries like China and India that have considerable capacity in ammonia production and refinery throughput. A few blue hydrogen production technologies such as steam reforming, gas heat reforming, and biomass gasification with technology readiness levels (TRL) of less than 7 will play a crucial role in the hydrogen economy by 2030. Rising environmental awareness, coupled with the EU’s binding target of effecting at least a 40% reduction in greenhouse gas emissions by 2030, underpin Europe’s lead in blue and green hydrogen generation. The Netherlands and Germany are the largest markets for blue and green hydrogen in the region, respectively.
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One of the main dilemmas is the multiplicity of technology choices for hydrogen production: steam methane reforming (SMR), coal gasification, partial oxidation, and electrolysis – the most expensive but also most environmentally friendly production technology – for gray hydrogen together with PEM, alkaline electrolyzers, solid oxide electrolyzers (SOE), and anion membrane electrolyzers for green hydrogen (see chart below). An array of choices worthy of Mambo No. 5!
In terms of green hydrogen production technologies, alkaline electrolyzers will remain the largest market, swelling to USD 1.5 billion by 2030. China will look to this technology to boost manufacturing capacity of green hydrogen from around 5.4 GW in 2022 to an estimated 100,000–200,000 tons by 2025. Alkaline electrolyzers will grow marginally faster than competing technologies like PEM over 2022-2030, primarily due to $/kg factors. Post 2030, new technologies will play a more prominent role.
SOE will be a major focus area in Europe backed by its high efficiency of 80–85% relative to other solutions. Nevertheless, as the chart reveals, it will still constitute a comparatively smaller share of the overall green hydrogen production technology market.
Midstream – Conversion, Storage and Distribution Challenges
The cost of producing hydrogen is equivalent to the landed cost of converting, storing and transporting it. It costs roughly around $2.37/kg to produce liquid hydrogen and about the same amount to convert, store, transport, and then re-convert it.. Similarly, while it is slightly cheaper to produce, convert, store and transport hydrogen produced from ammonia than it is from liquid hydrogen, this is neutralized by higher re-conversion costs. Hydrogen is, therefore, disadvantaged in terms of cost competitiveness compared to other energy sources that are significantly cheaper to store and transport.
Concerns linked to transportation also remain a critical consideration in overall infrastructure development. The choices fall between pipeline delivery and liquid tankers for long distance transportation. Meanwhile, cost reduction in electrolysis technology will drive demand for onsite hydrogen supply fueling stations.
The lack of hydrogen refueling stations presents another stumbling block. Targeted investments will be required to increase coverage and boost confidence among end user sectors like automotive. Today, much like my cricket batting average which hovers in the lower double digits, most countries have fewer than 100 stations, many of which are not even fully functional. Of the 15 hydrogen refueling stations in the UK, for instance, a few have already shuttered. On the other end of the scale, Japan which has made hydrogen a lynchpin in its clean energy strategy, stands out with 174 stations. MarketsandMarkets forecast about 18,000 fueling stations globally by the end of 2030, a number which pales in comparison to the robust infrastructure available for fossil fuels and electric vehicles (EVs).
In short, it would be hard to make a compelling business case for shipping green hydrogen from, say, Australia to Europe. That said, challenges related to conversion, storage, and distribution open up opportunities for business model innovation. MarketsandMarkets envisions a business model where hydrogen generation and consumption occur at site. This is a potential game-changer since it unlocks a realm of new possibilities where airports, ports and, potentially, even the military could be both producers and consumers, creating a springboard for a localized hydrogen economy.
Downstream – The Excitement Begins
A shift to green hydrogen offers the prospect of slashing total carbon emissions – estimated at over 50 gigatons globally in 2022 – by nearly 1 GT in just chemical and industrial applications, before effecting sizeable carbon reductions across power, transportation, and construction and other industries by 2050.
The chemical industry stands to be one of the biggest beneficiaries of a hydrogen economy, realizing end-to-end green labelling for key chemicals like ammonium sulphate, ammonium nitrate, and methanol derivatives. Ammonia production is set to generate demand for blue and green hydrogen to the tune of nearly 13.2 million metric tons (MMT) by 2035. Simultaneously, the increasing penetration of e-methanol from current levels of less than 1% to 20% by 2035 is projected to push demand for green hydrogen to 8 MMT.
Green hydrogen is also poised to catalyze decarbonization initiatives in the steel and semiconductor industries. ‘Green’ steel which uses hydrogen to achieve a minimized carbon footprint is currently under development. Penetration rates are set to grow to 10%, driving annual demand for green hydrogen to 15 MMT by 2050. Demand from the semiconductor industry is also projected to spike due to hydrogen’s role as both carrier and process gas in chip manufacture.
Another industry which will be significantly impacted by hydrogen is the automotive industry. The number of hydrogen powered fuel cell vehicles is expected to surge from 20,000 units in 2022 to around 1.28 million units by 2035. Such forecasts are based on the substantial volume of long distance and heavy-duty fleets, including buses, light-, medium- and heavy-duty trucks which require a sustainable powertrain. While the Asia-Pacific region is focusing on passenger vehicles, the US and EU will concentrate predominantly on commercial vehicle applications.
I believe there is an abundance of exciting use cases for hydrogen in energy, ports, aviation, marine, defense, space, and unmanned vehicles, among others. A hydrogen-based hyper sonic plane that can take you from Australia to the UK in two hours? Swiss aerospace company Destinus aims to do just that with its Mach 5 hypersonic passenger aircraft fuelled by hydrogen for ultra-long-range transportation.
Even more fascinating is the innovation that will occur in hydrogen specific vehicle platform and architecture strategies. Like EV skateboards developed in passenger vehicles, hydrogen will herald in new commercial vehicle platforms that integrate the fuel cell systems into new product categories that will optimise the balance of range vs. refuelling vs. payload.
China vs the Rest of World (RoW): The Race Continues
China’s aggressive & successful industrial policies related to solar, wind, and battery technologies are well documented. Will it be a reprise when it comes to hydrogen? The short answer: Yes. The longer one is that they are already there. Europe, for example, is expected to turn to China whose solutions focus primarily on hydrogen as a sustainable energy carrier rather than a commodity.
China’s strategy, as we saw with electric batteries, has been to bet to one horse (technology), drive economies of scale, reduce costs, and own the entire supply chain. A case in point is its monopoly over lithium iron phosphate (LFP) batteries rather then the more expensive, but energy efficient & technically better nickel manganese cobalt (NMC) batteries. Similarly, in hydrogen, China is expected to bet on Alkaline electrolysers and has the ability to develop alkaline electrolysers at <30% of EU costs, although it is not yet competitive in terms of PEM and SOE.
This past weekend, a liquid hydrogen-powered car made its debut at a 24-hour endurance race in Japan. From 2026, hydrogen-powered cars will be allowed to participate at the gruelling Le Mans competition. It’s a race to the finish and to stay ahead, the West needs smarts, speed, and stamina to develop energy efficient technologies like SOE at competitive price, or run the risk of being second place finisher, yet again in what will be an important source of energy in the future.