Momentum suggests that many countries are willing. Nine published hydrogen roadmaps in 2020, a record 200MW worth of electrolysers shipped, and there is an estimated 17GW in the electrolysis project pipeline1. Yet, only two countries have fully funded their hydrogen strategies. Many other projects are speculative and leave out crucial details on commissioning dates and technology choice. They are also in want of funding.
1 BNEF – 1H 2021 Hydrogen Market Outlook
Indeed, of the $300 billion in investment that the Hydrogen Council says is needed by 2030 to develop all projects currently announced globally, governments have only pledged $70 billion2. To unlock further investment and generate more certain returns, lower production and distribution costs are crucial.
2 The Hydrogen Council – Hydrogen Insights 2021
While the levelised cost of hydrogen made from solar or onshore wind power is set to drop dramatically, cost remains a challenge for now. Green hydrogen production currently ranges from less than $1/kg to $10/kg. Divergent electrolyser and renewable energy prices underlie that disparity. Thus, producing green hydrogen is expensive in many parts of the world. Without a commercial business case, meeting electrolyser targets will require funding.
The gradual decline in renewable energy and electrolyser prices promises to make green hydrogen cheaper than blue hydrogen made from coal or natural gas with carbon capture by 20303. By mid-century it should fall below $1/kg in many countries, outcompeting grey hydrogen made from natural gas alone3.
Whether the cost reduction comes quick enough remains to be seen. According to the IEA, global demand for hydrogen would need to more than double from existing levels by 2030 for the world to meet the goals outlined in the Paris Agreement4. Approximately half of that demand would need to be met using low-carbon hydrogen production.
“Many countries have come out with net zero targets, and corporates are following,” Shah says. “There’s increasing support in terms of the macro fundamentals of hydrogen but making good on those intentions will take time because the machinery is not adapted to a sudden surge in interest for hydrogen projects. New policies need to cover several things including land, infrastructure, regulation, grid clearances and carbon prices.”
3 BNEF – 1H 2021 Hydrogen Levelized Cost Update 4 IEA – Net Zero by 2050
Hydrogen holds huge potential to decarbonise heavy industry and transport. Success is vital to achieving net zero ambitions as these hard-to-abate sectors account for roughly one-third of global CO2 emissions5. To accelerate the adoption of hydrogen and make it competitive in industry, authorities will have to increase carbon prices substantially.
In the European Union, for instance, the carbon price is forecast to average EUR46.88 per ton in 2021 and reach EUR108 by 20306. While that is up significantly from the 2020 average of EUR25,7 those prices are still far lower than what is required to make hydrogen competitive with the cheapest fossil fuels in several hard-to-abate industries.
5 Energy Transitions – Mission Possible 6 BNEF – European Carbon Monthly: May 2021 7 BNEF – 1H 2021 European Carbon Market Outlook
Industrial hydrogen projects in Europe and elsewhere will require extensive aid, especially if carbon prices do not rise significantly. In the meantime, carbon credits can help companies in hard-to-abate industries to offset their emissions. Here, Standard Chartered is contributing through its joint venture Climate Impact X (CIX) – a global exchange and marketplace for high-quality carbon credits due to launch at the end of this year8.
CIX will leverage satellite monitoring, machine learning and blockchain technology to enhance the transparency, integrity and quality of carbon credits that deliver tangible and lasting environmental impact. The exchange will facilitate the sale of large-scale high-quality carbon credits through standardised contracts–catering primarily to multinational corporations and institutional investors.
8 Standard Chartered
The global economy is picking up steam and with it concerns around inflation. Already, prices of raw materials including steel and copper have risen to multi-year highs9. In turn, this threatens to drive the costs of renewable technologies upwards.
For instance, renewable power generation, battery storage, electric vehicles, charging stations and related grid infrastructure accounts for about a fifth of copper consumption10. With demand set to increase over the coming years, prices are on course to rise further.
“Inflation could actually put the brakes on the developments and create a negative feedback loop for the clean energy transition,” Lahdahda says. “We've seen it during the upcycle of oil prices before – tremendous inflation in new project costs derailing momentum.”
9 Bloomberg 10 Bloomberg
Rate hikes are another consideration. The latest consumer price data in the U.S. increased the odds that the Federal Reserve will raise rates in 202211. Given that debt-to-equity ratios of 80:20 are common for renewable energy project financing12, higher interest rates could make investing less attractive.
“As we transition from some of the more polluting technologies to those that are blue or green, the cost is going to be higher,” Shah says. “So, the question becomes, how does that impact the long-term trajectory for the adoption of hydrogen and other clean technologies?”
11 Bloomberg 12 IEA – Financing & Funding Trends 2019
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