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Getting high on hydrogen
Enthusiasm for hydrogen is high, but Agora Energiewende argues for deployment only where its use is “inescapable”

Over the past two years interest in hydrogen’s energy transition potential has sky-rocketed. Governments have issued strategies and adopted ambitious targets. Companies have proposed a smörgåsbord of innovative projects designed to produce hydrogen on an industrial scale.

It’s not hard to see why. Hydrogen is a gas fuel which emits no greenhouse gas emissions at the point of combustion. It could therefore help to decarbonize existing energy systems relatively easily. It can be stored, transported by pipelines and used to bring clean heat, power and cooking fuel to homes and businesses in a fashion very similar to natural gas.

Or could it?

Hydrogen realities

In a new report, German thinktank Agora Energiewende takes a detailed look at the merits of hydrogen adoption and provides some sobering insights into its potential role in the energy transition.

First off, Agora puts hydrogen into perspective. The energy transition’s primary component is decarbonised electrification, backed by supercharged energy efficiency. Hydrogen is secondary and comes into play only when electrons cannot provide a technically or economically feasible solution.

In the majority of cases, electrical solutions are more efficient and cheaper. As an extreme, hydrogen can be as much as 84% less efficient than heat pumps for heating and as much as 60% less efficient for use in cars than batteries, the report says.

Hydrogen adoption in these use cases would require two to four times as much additional renewable energy capacity to function. As a result, the report argues, hydrogen should be supported only where its use is “inescapable”.

Most of all, H2 will be important in industrial applications, for example as a reagent or feedstock for steel and plastics production, long-haul aviation and maritime transport as well as in firming a renewable-based power system. Thereby, green hydrogen is helping to fulfil the requirements of the Renewable Energy Directive as it is classified as Renewable Fuel of Non Biologic Origination. As such, green hydrogen support the transport sector to decarbonize and to reach its targets. With the revision of the Directive targets will be extended to also industry and heating sector.

In addition, hydrogen would be used in the power sector as fuel for climate neutral firm capacity. With this, H2 can brigde large swings in seasonal supply and demand, and again as back-up in heating for residual heat loads rather than building-level heating.

Why hydrogen is seen as a key to success of the energy transition

No-go areas and transportation limitations

The report sees little potential for blending hydrogen directly into the natural gas system, owing to the expense and only limited emissions reductions. Higher levels of hydrogen use, sufficient to meet emissions targets in the residential sector, would triple the price of wholesale gas, Agora argues, in addition to the cost of upgrading the gas system, including appliances in people’s homes.

“There is no credible route where hydrogen enters the residential heating sector,” it says.

The report is equally hard hitting when it comes to hydrogen for land transport: “Just a decade ago, fuel-cell electric cars seemed to be the future of the automotive industry. Today, the dream is over,” it says.

Hydrogen vehicles will be the preserve of niche sectors, such as construction, mining and long-range freight transport. But even in this latter segment, Agora is not optimistic about hydrogen’s applicability.

As 80% of freight journeys are less than 400 km – within the range of battery technology – battery-electric transport will dominate. Further improvements in batteries are likely to shrink hydrogen’s potential share of land freight transport even further.

Hydrogen’s use in transport is most suitable as the feedstock for clean, energy dense fuels for aviation and shipping. Ports will be “a hotspot” for hydrogen refuelling infrastructure and the meeting point for industrial users and offshore renewable energy generation, according to the report.

Regional not global market

Although Europe has sufficient potential to meet its green hydrogen needs, the states face challenges: Since each GW of electrolysis must be accompanied by one to GW of additional renewable energy, a massive expansion is needed.

Nevertheless, the authors assume that hydrogen markets will be regional, rather than global, reflecting transportation costs. Hydrogen transport over short distances is cheapest by repurposed pipeline. On long distances, generating electricity and using high-voltage DC cables becomes competitive to newly built pipelines.

The report sees the import of sustainable hydrogen by pipeline as likely, but given the impact of transport costs, only from the EU’s immediate neighbours, such as Ukraine, North Africa or to Europe’s southeast. North Africa, in particular, is seen as a potential source of below-average-cost hydrogen based on its abundant solar resources.

Shipping makes sense for very long distances, but here conversion to energy-intensive, hydrogen-based products, such as ammonia, methanol or high-value chemicals, is likely to prove the most economically attractive option, Agora argues.

Financing hydrogen

Agora sees ‘no regret’ investment to supply hydrogen to industry as the ideal anchor for initial market growth. This will require financial support, which can be delivered by carbon contracts for difference, quotas, for example for power-to-liquids in aviation, the creation of scalable green energy markets and hydrogen supply contracts.

This funding would be transitional, with direct support gradually phased out after 2030. As the current cost gap for green hydrogen falls to acceptable levels, support would be more directly borne by consumers and businesses.

The report says funding via higher carbon prices would not work as carbon prices would have to reach levels unacceptable to consumers and businesses alike to incentivise hydrogen use.

Green not blue

Agora says blue hydrogen could play a role, but warns that its production is not 100% emissions free, particularly if the natural gas used as feedstock travels a long distance before conversion to hydrogen. In addition to upstream emissions, even the best carbon capture rates do not exceed 98%.

Agora says these two factors alone, even based on industry best practices, mean that the lifecycle emissions footprint of blue hydrogen would “exceed the threshold defined in the European Commission’s Sustainable Finance Taxonomy.”

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