Scale matters in green-hydrogen

What can we learn from the past to accelerate green-hydrogen development? In simple terms, the technology and the hydrogen market must be addressed simultaneously. This can be achieved through a range of ‘technology push and market pull’ actions, for example, increasing research, development, and innovation efforts (RDI) to improve the technology base and reduce its costs. Or, providing financial support to investments of full-scale pilot plants and demonstrations which will increase the volume up-take of the technology and will lead to important learning-by-doing or learning-by-using endogenous learning effects that further reduce the cost of technology. Empirically, we know that for each doubling of the cumulative volume produced, the unit cost may drop by 15 per cent.

Naturally, if the technology were still too immature such as in the case of fusion energy, technology-push would be preferred as it would not make sense to start massive industrial efforts yet. For solar photovoltaics (PV), the German feed-in-tariffs opened the market for PV and, together with the Chinese scale-up of industrial production of solar cells, helped photovoltaics to reach a global breakthrough leading to 90 per cent lower prices in just a decade. The same story repeats itself now with batteries and electric vehicles, where the decreasing cost of batteries has been even more fierce than with PV.

Could such a development be possible for green hydrogen as well? Green hydrogen is still 2-4 times costlier than traditional fossil-fuel-based hydrogen and is not competitive to form a replacement. A target price of around €2/kgH2 could ensure competitiveness in many applications. However, that cost target is not that far off as a 50-60% drop from the present cost level of producing green-H2 would be required. From a historical perspective, compared to other successful clean energy technologies, it is now the right moment to gear up the efforts to commercialize and scaling-up green hydrogen. The transition is already passing the point where combining stronger push-and-pull measures are justified. Even shifting more towards the market-pull would be motivated as that would create the industrial base for the massive scale-up and economy-of-scale-driven price reduction required for green hydrogen to reach the energy-relevant level.

The markets are now clearly starting to pull hydrogen into a larger scale, often helped by the support from national governments. A recent report by McKinsey (2022) shows that some 680 large-scale hydrogen projects have been announced globally, reaffirming the intent to make hydrogen viable for large-scale use (Fig. 1). These projects importantly span the whole supply-chain from production, transport, use to the infrastructure of hydrogen, which supports creating the necessary ecosystems for massive use of hydrogen. Europe has a lead in this development as almost half of the large-scale hydrogen projects are located here, and the EU shows the way forward in several areas, such as using green-hydrogen for steelmaking. The European Union hydrogen strategy, which explores renewable hydrogen to help cost-effectively decarbonize the EU, has played a pivotal role in this development by creating a concerted European action toward scale-up of production and infrastructure for hydrogen. If successful, the global push of emission-free hydrogen could help to cut even up to 20 per cent of the global CO2 emissions by 2050.

Figure 1. Large-scale hydrogen projects globally. (Source: Bernd Heid, Alma Sator, Maurits Waardenburg, and Markus Wilthaner (2022). Five charts on hydrogen’s role in a net-zero future. McKinsey Sustainability)

Though the market-pull signals for green-hydrogen are very encouraging, the technology-push will still be highly useful and even necessary to reduce the costs and in helping to ‘root’ and integrate hydrogen into energy systems. One key area in this context will be reducing the cost of green-hydrogen production through electrolysis, which is influenced the investment (capex) and the running costs (opex), in particular the price of electricity and efficiency of the H2 system. By 2030, the specific cost of both alkaline and PEM electrolysis could be halved to below €500 per kW through technological advancements, an increase in manufacturing volumes and scaling up to 100 MW-units (source: Cost forecast for low-temperature electrolysis – technology driven bottom-up prognosis for PEM and alkaline water electrolysis systems. Fraunhofer Institute for Solar Energy Systems ISE, October 2021).

Combining the above technological achievements within reach with better systems operation, in particular increasing the operation time of hydrogen production plants to at least 40% of full load hours and feeding electrolysis with cheap renewable electricity, could lead to a complete cost breakthrough of green-hydrogen, i.e., meeting the perhaps most crucial prerequisite for full scale-up. Integration of hydrogen production into the energy systems offers further benefits which should neither be overlooked. Production of H2 and its derivates (e.g., synthetic fuels) involves side-products such as heat and oxygen, which create value. For example, a full-scale power-to-gas plant using hydrogen to be built in Vantaa city close to Helsinki, Finland, will integrate a whole hydrogen system into the municipal energy system. The waste heat created will be utilised, thus increasing the hydrogen system's overall energy efficiency to 90 per cent.

Technology-push-actions should also address important strategic future issues that could either accelerate or hamper green-hydrogen uptake and scale-up in the long term. Such questions include e.g., the availability of critical materials needed in hydrogen technologies, storage of hydrogen in large-scale, safe use of H2 in civic society, etc. Many of these technology-related questions have been under research and development for several decades. Still, these should now be addressed through adequate RDI resources and coordinated efforts to find satisfactory solutions yet to be developed. Bridging science to innovations will be of utmost importance to feed next-generation solutions and (more effective and cheaper) technologies necessary for the next steps in scaling up.

Hydrogen has remained as a vision for half a century from the times of the oil-crises, when it was first identified as a potential mover-and-shaker technology in energy. Hydrogen has undergone many hypes in the past. But this time, turning the promise of green hydrogen into one of the solutions to the climate-energy nexus is closer to reality than ever because scaling matters here, and we now have a more credible pathway for scaling up green hydrogen.