Reducing green hydrogen production costs hangs on gov’t support

Hydrogen can reduce 10% of the total emissions to meet the global net-zero target, IRENA said.

Hydrogen has the potential to transform the global energy landscape, but in order to fully tap into this potential, governments must implement policies such as tax or benefit schemes that support investment and lower production costs. Whilst it may take up to five or 10 years for these efforts to significantly reduce costs, according to ERM Partner Justin Payne, it is crucial for governments to act now in order to fully realise the potential of hydrogen in the energy transition.

According to Michael Ottaviano, Managing Partner, Asia Pacific Renewable Energy at ERM, the majority of the approximately 100 million tonnes of hydrogen produced annually is created through carbon-intensive processes. Only less than 1% of which is low-carbon or "green" hydrogen produced through the process of electrolysis using renewable energy, the International Energy Agency (IEA) said. 

The International Renewable Energy Agency (IRENA) reported that the cost of generating low-carbon hydrogen depends on the cost of renewable input, which is the major cost driver, the electrolyser and the cost of capital.

As renewable energy is the main input required in producing green hydrogen, Payne said bringing down the green electricity cost will be crucial in reducing the cost of green hydrogen. 

Increasing the adoption and deployment of electrolysers will also help in reducing the cost of green hydrogen. Decarbonisation will come at a cost, he said, but it can be supported by the governments through tax or benefit schemes.

“Once you get to a critical mass of projects up and running, then its support is no longer required because the established supply chains are in place, and then the market dynamics will function without direct incentives,” he said.

The cost of producing green hydrogen is currently $5 per kilogram (kgH2) and is projected to reach below $1/kgH2 along with solar photovoltaic for most regions by 2050, according to IRENA. 

For green hydrogen to play its role in achieving net-zero emissions, almost 14 terawatts (TW) of solar, 6TW of onshore wind, and 4TW to 5TW of electrolysis will be needed, it said. Hydrogen can contribute to the energy transition and meet 12% of the final energy demand and reduce 10% of the total emissions under a scenario in line with the climate targets.

However, for markets with lower installed renewable energy capacity such as Asia with around 5% to 10% renewable penetration, the immediate focus should be on ramping up the renewable energy component of grid supply to 30% of the total mix, Ottaviano said.

“Other countries that are wealthier and are already advanced on renewable energy deployment should be the ones leading the way on de-risking green and blue hydrogen,” he said.

“For the moment, the low-hanging fruit in many Asian countries is deploying wind, solar, and offshore wind. You can do that without having to really change the grid fundamentally or adding any other infrastructure associated with hydrogen. That will give some time for hydrogen to scale elsewhere, Ottaviano said, adding that hydrogen should be used initially for harder-to-abate sectors.

According to the IEA, hydrogen use is mostly dominated by industries such as oil refining, ammonia, methanol, and steel production. It can also be used in transportation and buildings, as well as for power generation as it is an option for storing renewable energy. 

Hydrogen and ammonia can also be used in gas turbines for increased power system flexibility, whilst ammonia can help reduce emissions in coal-fired power plants, it said.

Driving hydrogen investments

Payne said policy announcements at the country level play a crucial role in initiating hydrogen-related projects. An example of a policy backed by the government is Singapore’s National Hydrogen Strategy for its net-zero emissions target by 2050. A part of this strategy is importing hydrogen from international partners.

“Projects that are supported by government policy will be the first ones that will start to catalyse the investments needed in the region to commence international movements of hydrogen,” Payne told Asian Power.

To encourage the adoption of hydrogen and build a base of end-users, governments should address the cost differential between conventional fuels and green fuels so the end customers and first movers have a financial incentive to make the transition.

Payne cited Germany, which is working on a model, the H2Global mechanism, to fund the difference between conventional fuels and low-carbon fuels (green hydrogen and its derivatives including ammonia and methanol) which may allow the production of electricity using renewable fuels at a comparable price as using conventional fuels, dependent on the bidding processes.

“We need end customers to be able to encourage the investment in the supply chain, which then supports the investment in the production. Getting that supply chain up and running is key and making sure that there's a financial motivation to be the first mover is a really important part of that process,” he said.

Transporting hydrogen

Raul Miranda, programme officer at the IRENA, noted that there are various pathways to transport hydrogen, including ammonia, liquid organic hydrogen carriers, and liquid hydrogen.

“Ammonia pipelines are very likely the most cost-effective routes to transact the hydrogen. They also can provide a very good starting point today,” he said at the Asia Clean Energy Summit during the Singapore International Energy Week.

Miranda said there is a “pretty solid ammonia market” as there is already existing infrastructure, and it can already be used directly without the need to reconvert to hydrogen.

According to IRENA, ammonia is already applied at a large scale and has a developed transportation infrastructure such as ports, vessels, and storage. However, the ammonia market also needs to be decarbonised to meet the climate target.

IRENA said shipping costs of ammonia are expected to drop by one order of magnitude to $0.8/kgH2 from $8/kgH2. If the price levels for delivered hydrogen reach between $1.5 to $2 per kilogram, the cost of green hydrogen supply would be equal to that of liquified natural gas in 2020.

“Innovation, mass manufacturing, and global supply chains are needed for these cost reductions to materialise. This analysis also assumes that a market will develop for clean hydrogen. As of 2022, this market is still nascent, with less than 1 gigawatt (GW) of electrolyser capacity in place worldwide, four orders of magnitude below the 4,400GW needed by 2050,” it said.

In the Asia Pacific, Miranda said Australia is expected to play an important role as an exporter of hydrogen in main markets in the region including Japan and South Korea which are amongst the largest net importers.

“Australia is currently supplying 32.5% of its national electricity demand from renewables and is planning on increasing this to 82% by 2030 through continued deployment of onshore wind, solar and storage, building 10,000km of new transmission and with the first offshore wind farms looking to come online by the end of decade,” Ottaviano said.

Need for certification

For the short-term, Miranda said there should be a certification scheme for hydrogen as it is important for market creation and for “signalling proper economic incentive.”

According to IRENA, developing the market goes hand-in-hand with certification that will enable the tracking of renewable hydrogen to prove to customers the lower emissions from production and to differentiate it from other carbon-intensive hydrogen.

“Many ongoing initiatives aim to develop a certification scheme, but most of these focus on the production step and greenhouse gas emissions. To make them suitable for hydrogen trade, the (re)conversion process and transport need to be covered as well,” the agency said.

It added that the certification scheme also has to be linked with derivatives or commodities such as methanol in order to link hydrogen production with the demand and full climate mitigation benefits. 

According to IRENA hydrogen certification should meet four conditions to address the needs for global trade. Hydrogen certification should cover the entire supply chain of the importing country, including the derivatives making it more attractive for trade, and the scope, boundaries and taxonomy should also be consistent across borders.

The certification has to go beyond greenhouse gas emissions (GHG) and cover sustainability, and there should be a distinction between the quantitative aspects or the lifecycle of GHG emissions and the qualitative aspects or the labels. 

“Each country should be able to define [its] own standards (i.e. what is acceptable for their needs) but the underlying information should be transparent, clear, and common. This can allow for market diversity, support competition, and set a pathway that will continually push [the] industry to improve [its] operating procedures,” it said.