CRA: Hydrogen’s growth in the transition to a decarbonised future

By Michael Rogers


Where does hydrogen fit in along the path towards a net-zero carbon future?

Responding to emailed questions from Energy Northern Perspective, Enrique Glotzer of Charles River Associates (CRA), a global consulting firm, explains how using hydrogen has over economic hurdles to become an important and growing segment in the energy mix.

Enrique Glotzer, Principal, CRA’s Energy practice
Enrique Glotzer, Principal, CRA’s Energy practice (photo: CRA)

Glotzer, a Principal in CRA’s Energy practice, has led projects and advised senior management on a broad range of strategic, financial, organisational, and operational issues.

More recently, he has focused on the challenges related to the energy transition to a decarbonised and sustainable future including changing utility business models, renewables, distributed energy, advanced nuclear, smart buildings, mobility/building electrification, and leading the practice’s efforts on hydrogen economics.

ENP: Although hydrogen has been considered a potential alternative energy source, especially over the past 50 years, technological challenges to sustainable production have slowed its progress. What has changed to help overcome the hurdles?

EG: “The concept of a hydrogen economy as an alternative to the fossil fuel economy was first suggested in the 1970’s but only reached peak interest in the 2000’s. Interest gradually faded given economic challenges – the technology was still premature at the time with high relative costs making it uncompetitive.”

“In the last couple years, hydrogen interest has again started to surge. But, this time, interest has a firmer footing as it is driven by improving economics – declining costs and increasing efficiency of electrolysers, dramatic cost reductions of renewables, scaling of global hydrogen demand, increasing public pressure to decarbonise, and growing regulatory support. The combination of these many factors has enabled hydrogen to start overcoming economic hurdles giving it a credible chance to play a major role in the energy transition.”

How has carbon pricing/taxation contributed to the push towards green and blue hydrogen?

“Around 40 countries have enacted some type of carbon pricing, however, the impact has been limited in the past given relatively low prices – for example, carbon prices in Europe (emission trading system or EU ETS) remained below EUR 10 per tonne between 2000 and 2018. However, the EU ETS has risen dramatically in the last 2 years and is now trading at over EUR 40. These price levels have started to impact demand and it has been one of the key drivers supporting the growth of hydrogen investments seen across Europe.”

“Going forward, the speed of hydrogen adoption will vary by end-use application based on the economic competitiveness relative to alternative technologies. A combination of targeted policies would be more effective in supporting the various hydrogen sectors. For example, in sectors where hydrogen is directly competing with fossil fuels and where economics are driven by operational costs, such as industrial applications, a meaningful carbon price could be most supportive. In sectors where significant new customer investment is required, such as transportation, tax incentives might be more impactful. However, in sectors where the economic gaps are more difficult to bridge even with a high carbon price, such as retail building heat, a more direct regulatory approach may be required.”

Considering the market and cost, could you describe the advantages and disadvantages of producing blue and green hydrogen?

“In the near term, blue hydrogen (SMR plus CCS) has a significant cost advantage to green hydrogen (electrolysis from renewables) and will likely see growth near-term by leveraging existing capacity and scale needed to meet the growing demand for hydrogen. Longer term, the declining costs of renewables and electrolysers have the potential to overcome current disadvantages since blue hydrogen costs are not expected to decline over time and CCS is not always feasible – either from lack of geologic storage availability or public opposition driven by the risk of residual carbon emissions.”

“However, there are also disadvantages from producing hydrogen from renewables. Inherent efficiency losses from the electrolysis process mean that a large volume of incremental renewable capacity (beyond what is needed to decarbonise the power sector) will need to be built to meet growing hydrogen demand. Additionally, the variable nature of renewables results in a relatively low-capacity factor (e.g., around 20% for solar) which has a significant negative effect on electrolyser economics. Higher capacity factors allow the electrolyser to run at full capacity, spreading electrolyser costs over a larger volume of hydrogen produced, improving operational efficiency, and reducing maintenance costs (from starting and stopping the system multiple times during a typical day).”

“Although still in early stages, there is also potential for other hydrogen ‘colours’ to become increasingly important in the future, such as purple (advanced nuclear plus hydrogen) and turquoise (methane pyrolysis – high heat transformation of natural gas with only solid carbon as a by-product).”

In which markets/segments do you see hydrogen playing a defining role in decarbonisation?

“My current view is that hydrogen will find a major role in sectors that are harder to decarbonise (e.g., high-grade industrial heat and steelmaking), where electrification is not a viable option (e.g., industrial feedstocks – ammonia and hydrocarbons), and where CCS is not well accepted and/or the capacity to store carbon is limited.”

“Longer term, decarbonising the last few percent of electricity generation in the power sector will be another key growth area for hydrogen – with adoption varying based on local market dynamics, economics of competing storage technologies, and carbon pricing/regulation.”

“However, there is likely to be less potential long-term demand for hydrogen in sectors where electrification is economically feasible such as building heat, passenger vehicles, short-haul trucking, and low-grade industrial process heat.”

Hydrogen combustion versus fuel cells – how do the two markets stack up? Where do expect the growth to be?

“These are really complimentary technologies for use cases in different market applications. For example, combustion will be needed for large scale applications such as high-grade industrial process heat and seasonal energy storage for power generation using hydrogen turbines. Fuel cells are ideal for electricity generation where size and energy density are more important (e.g., transportation and back-up power for commercial buildings). Both technologies have similar current efficiency and economic challenges that are expected to improve over time. Additionally, fuel cells require high-purity hydrogen and thus are limited to dedicated hydrogen distribution systems while combustion can use blended hydrogen (e.g. with natural gas) or less pure reprocessed hydrogen.”

Looking forward, how do you expect the hydrogen market to look in the next 5 to 10 years?

“I fully expected that this time around we will see continued future growth for hydrogen. Production growth over the next 5-10 years is likely to grow faster than historical rates (~2% annually since 2010) driven by increasing demand for green hydrogen (~1% of supply today) partially offset by potential declines in refinery demand (>50% of current demand).”

“However, given that the expected industrial demand will take time to build up, I expect that growth will only significantly accelerate beyond 2030. In other words, by 2030, the hydrogen market will be larger than today, will have a greater production share from green hydrogen, and will also be more focused – fewer large suppliers competing for specific markets and end-use sectors.”

Enrique Glotzer is a Principal in CRA’s Energy practice and has 20 years of consulting and executive experience across a variety of sectors including utility and power generation, renewables, natural resources, and industrials. Glotzer has a bachelor’s degree from the Wharton School and an MBA from Columbia.