Hydrogen holds tremendous promise as both a source of clean energy and a way to decarbonise hard-to-abate industries, yet current production methods rely almost entirely on coal and natural gas.
Therein lies a paradox: Before hydrogen can contribute to a cleaner world, first we must clean up production.
To decarbonise the global economy and meet climate targets, the world needs a clean molecule. Hydrogen is that molecule. It’s versatile, reactive, storable, transportable, clean-burning and can be produced with low or zero emissions.
With the right level of investments, hydrogen could meet 24 per cent of global energy needs by 2050, putting the world on course for a 1.5-degree scenario1.
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The many uses of hydrogen
The use cases are far-reaching. In 2019, power and heavy industry accounted for around 60 per cent of emissions from existing infrastructure2. Here, hydrogen offers ways to decarbonise notoriously hard-to-abate industries including steel, chemicals, cement and long-haul transport. It can bolster renewables like wind and solar by covering intermittency when supply falls short of demand. It’s even one of the most promising options for storing and transporting electricity from renewables.
Potential demand for hydrogen in 2050 in different scenarios
Yet, for all of its potential, the signs of scale-up are still not there. Production is far from cost-competitive, and policy support remains insufficient. In order to become a mainstay in the energy space, hydrogen must overcome a number of familiar challenges.
Hydrogen is already widely used in some industries. Several technologies available today enable hydrogen to produce, store, move and use energy.
While hydrogen remains one of the most viable alternatives for a range of applications, scaling up existing technologies to deliver competitive low-carbon solutions requires around USD280 billion worth of investment and USD150 billion worth of subsidies by 20303.
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Putting the proper supply infrastructure in place by 2050, for instance, would require USD11 trillion worth of investment.
That spans everything from boosting electrolyser capacity and building large-scale supply and distribution networks to advancing fuel-cell technology and installing refuelling stations4.
The development of the hydrogen ecosystem has been slow. Much of that comes down to policy and funding. While industry and financial players are keen to invest, they require clarity on policy direction before they will commit. Progress requires planning and coordination among governments, industry and investors to ensure that hydrogen-related projects warrant the investment that they require.
How to accelerate hydrogen's competitiveness
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According to the Hydrogen Council, policy alignment across six areas could accelerate the hydrogen revolution: implementing national strategies and targets; coordination to maximise investment opportunities; facilitating regulation to remove investment barriers; defining national and international standards; re-purposing existing infrastructure and deploying new infrastructure; and introducing incentives including tax breaks and subsidies5.
Hydrogen has experienced a hype cycle previously, only to fall by the wayside. This time, growing policy support and declining costs could provide the momentum required.
“We've seen the impetus pick up over the last year driven by two things,” Andrew says.
“One is policy. That’s coming through recent stimulus packages to bolster the global economy, while the oil price crash has accelerated the transition among oil companies that can play a role. The other is that hydrogen was already gaining traction in certain parts of the world such as Australia and Japan, which has created a global race to secure first-mover advantage and become the market leader across the hydrogen value chain.”
The number of countries with policies that support investment in hydrogen is increasing, albeit at a slower pace than is required. In 2019, the International Energy Agency counted 50 targets, mandates and policy incentives in place that directly support hydrogen6. The bulk of those focused on transport. Meanwhile, the European Commission plans to increase its ability to produce renewable hydrogen six-fold by 2024 through hundreds of billions worth of investment as part of its green economic recovery plan7.
Drivers of hydrogen’s cost competitiveness
The declining costs of renewable power sources such as wind and solar may be another catalyst. Wind and solar are now the cheapest sources of new power capacity for two-thirds of the world’s population8. As prices continue to decline, the cost of producing hydrogen from renewable electricity—green hydrogen—could decline 30 per cent or more by 20309. In a best-case scenario, hydrogen could become cost competitive with the current wholesale price of natural gas in Brazil, China, India, Germany and Scandinavia by 205010.
“We need the right policies for investment to take place,” Galid adds. “Investment will drive costs down and make hydrogen more entrenched as a technology. We’ve seen a lot of encouraging news and commitments from governments recently, which suggests we’re progressing. The outlook for hydrogen as a result has improved materially since 2019 and a hydrogen future might be nearer than we think.”
Levelised cost of hydrogen production from large projects
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