Why hydrogen needs to be front and centre in the decarbonisation race

Europe is leading the charge to put hydrogen use front and centre of the global race to decarbonise, with a strong “competition” from USA with the IRA, which EU is now discussing to match with the Net-Zero Industry Act. However, the amount of low carbon and renewable hydrogen currently being produced is negligible.

DNV’s Hydrogen Forecast to 2050 predicts that hydrogen is likely to satisfy just 5% of global energy demand by 2050 – only a third of the volume to meet the Paris Agreement targets.

The emerging consensus is that low-carbon and renewable hydrogen will be central to the decarbonised energy system of the future. How prominent a role remains uncertain: various estimates point to global hydrogen use between 10% to 20%. By 2050, DNV’s Pathway to Net Zero asserts that it will take a 13% stake of a net zero energy mix with its share rapidly rising during the latter half of the century.

Global demand for hydrogen and its derivatives as an industrial feedstock is around 90 million tonnes per year [1]. It is expected that demand for hydrogen as an energy carrier will not reach this level until the late 2040s.

To scale beyond today’s forecast, much stronger policies are needed in the form of tougher mandates, demand-side measures giving confidence in offtake to producers, and higher carbon prices.

Europe in pole position on hydrogen policy
The transformative EU Green Deal has paved the way for a sustainable, climate-neutral, low carbon economy, which the continent hopes to deliver by 2050. In Europe, hydrogen is set to take an 11% stake of the energy mix by 2050, as enabling policies both kickstart the scaling of hydrogen production and stimulate end-use.

Policy packages that address the hydrogen value chain from production to usage instil a level of believability in implementation. Although governmental funding is mainly based on grants as a percentage of capex support (up to 50%) for hydrogen production, the funding is also available for other parts of the hydrogen value chain, stimulating demand offtake.

• The EU’s hydrogen strategy (2020) set a target of at least 40 GW of electrolysers capacity installed by 2030, producing up to 10 Mt/year of renewable hydrogen. By the end of the decade, REPower EU (2022) will boost ambitions, aiming for 10 MtH₂/year of domestic renewable hydrogen and 10 MtH₂/year of renewable imports. In addition to local production, Europe has targets of 10 Mt/year renewable hydrogen imports.

To support its goals, the EU – which boasts established carbon pricing schemes with clear upward pricing trends. DNV’s projection for the regional average carbon-price level is USD 95/tCO₂ in 2030 and USD 135/tCO₂ by 2050 – announced the creation of a European Hydrogen Bank, endowed with EUR 3 billion to help building a future market for hydrogen and “move [the European] hydrogen economy from niche to scale”. Moreover, the European Commission is to propose Carbon Contracts for Difference (CCfDs) for green hydrogen as part of its REPowerEU scheme.

• The Norwegian government is working on an updated roadmap during 2023 to establish hydrogen value chains, with exports and a domestic market for the production and use of hydrogen by mid-century. Norway has also signed a MoU with Germany and a feasibility study is underway for a hydrogen pipeline, where Gassco and DENA (German energy agency) with industry stakeholders is doing the analysis. The roadmap also calls for the coordination of the various funding agencies and schemes that already exist to support hydrogen development. Over the next three years, public authorities will collaborate with the private sector to establish five hydrogen hubs to support maritime transport, as well as industrial projects with associated production facilities. The announced establishment of HYDROGENi, a research centre for environmentally friendly energy where hydrogen and ammonia will be key focus areas [2], is also thought to help Norway’s goal of becoming a frontrunner in the hydrogen economy, thanks to collaborative efforts from over 50 local and European partners from the entire hydrogen value chain.

In Spring 2022, the UK government published its energy security strategy, which doubled the target for hydrogen capacity, from 5 GW in 2030 to 10 GW – with at least half of this being “low carbon” hydrogen (which could include hydrogen made using nuclear power) [3]. The country’s plan to develop a thriving hydrogen economy also include the newly-established GBP 240 million Net Zero Hydrogen Fund (NZHF – with strands of support for development and capital expenditure across CCUS-enabled and non CCUS-enabled production projects) to support deployment, and a Low Carbon Hydrogen Standard to enable market access and certainty. With this support, the UK expects to reach up to 1 GW of electrolytic hydrogen and up to 1 GW of carbon capture, usage and storage (CCUS)-enabled hydrogen operational or in construction by 2025. CfDs for hydrogen proposed by the UK are set to be finalised by the end of 2022.

Despite Europe’s head start, the passing of the USD 433 billion Inflation Reduction Act (IRA) of 2022 by the US Senate in August could be a game-changer for green hydrogen. The act’s generous tax credits of up to $3/kg (adjusted for inflation) for 10 years can make the renewable H₂ produced in the US the cheapest form of hydrogen in the world. The size of each hydrogen project’s available tax credits envelope will on a sliding scale set from a minimum of $0.12/kg to $3/kg depending on staff remuneration (the heaviest factor of the equation) and lifecycle greenhouse gas emissions (measured in carbon dioxide equivalent, CO₂e). Importantly, these are calculated from “well to gate”, meaning they encompass upstream methane emissions in the production of blue hydrogen.

It will be interesting to see how Europe and other regions react to the move.

Forecast at your fingertips
Hydrogen is essential to decarbonise sectors that cannot be electrified, like aviation, maritime, and high-heat manufacturing and should therefore be prioritised for these sectors. Policies will also need to support the scaling of renewable energy generation and carbon capture and storage (CCS) as crucial elements in producing low-carbon hydrogen.

According to Hydrogen Forecast to 2050, global spend on producing hydrogen for energy purposes from now until 2050 will be USD 6.8 trillion with an additional USD 180 billion spent on hydrogen pipelines and USD 530 billion on building and operating ammonia terminals.

Other highlights from the first standalone forecast of hydrogen in the energy transition through to 2050, include:

• Green hydrogen will increasingly be a less costly form of production in most regions. By 2050, 72% of hydrogen and derivatives used as energy carriers will be electricity based, and 28% blue hydrogen from fossil fuels with CCS, down from 34% in 2030. Some regions with locked in natural gas will have a higher blue hydrogen or hydrogen carrier share (e.g., ammonia).
• Cost considerations will lead to more than 50% of hydrogen pipelines globally being repurposed from natural gas pipelines, rising to as high as 80% in some regions, as the cost to repurpose pipelines is expected to be just 10-35% of new construction costs.
• Direct use of hydrogen will be dominated by the manufacturing sector, where it replaces coal and gas in high-temperature processes. These industries, such as iron and steel, are also where the uptake starts first, in the late 2020s.
• Hydrogen derivatives like ammonia, methanol and e-kerosene will play a key role in decarbonising the heavy transport sector, but uptake only scales in the late 2030s.
• DNV does not foresee significant hydrogen uptake in passenger vehicles, and only limited uptake in power generation.
• Hydrogen for heating of buildings, typically blended with natural gas, has an early uptake in some regions, but will not scale globally.

High hopes for hydrogen growth
As hydrogen is expensive and inefficient compared to direct electrification, scaling its use is beset by a range of challenges such as: availability, cost, acceptability, safety, efficiency, and purity. While it is widely accepted that urgent upscaling is necessary to ensure deep decarbonisation, and potentially play a role in energy and food security, the pace is far too slow and nowhere near the acceleration rates seen in renewables, power grid, and battery storage installations.

The energy industry is clear on where hydrogen and electrification can play a role: when questioned in an annual DNV survey [4] on the outlook for the energy industry, more than six in ten (62%) senior energy professionals stated that hydrogen will be a significant part of the energy mix by 2030 while close to half (47%) believed their organisation is actively entering the hydrogen market.

The hydrogen rainbow and carbon intensity
Electricity-based renewable “green” hydrogen – produced by splitting hydrogen from water using electrolysers – will be the dominant form of production by the middle of the century, accounting for 72% of output, and will be the cleanest hydrogen with less than 1/10 of the direct and indirect emissions compared to conventional “grey” hydrogen from natural gas. This will require a surplus of renewable energy, to power an electrolyser capacity of 3,100 gigawatts: more than twice the total installed generation capacity of solar and wind today.

Low-carbon “blue” hydrogen – produced from natural gas with typically more than 50-70% of the emissions captured – has a greater role to play in the shorter term (around 30% of total production in 2030), but its competitiveness will reduce as renewable energy capacity increases and prices drop.

Scaling hydrogen value chains will require managing safety risk and public acceptance, as well as employing policies to make hydrogen projects competitive and bankable. It is therefore imperative that society is fully on board with the urgent decarbonisation and energy security opportunities presented by hydrogen.

Hydrogen Forecast to 2050 is part of DNV’s annual Energy Transition Outlook (ETO) suite of reports. The results presented are part of the 2022 version of the main ETO report released in October 2022.

References

1. IEA (2021) Hydrogen Tracking report – November 2021, International Energy Agency, Paris. https://www.iea.org/reports/hydrogen
2. https://hydrogeneast.uk/norway-unveils-hydrogen-roadmap/?utm_source=rss&utm_medium=rss&utm_campaign=norway-unveils-hydrogen-roadmap
3. https://green-alliance.org.uk/wp-content/uploads/2022/05/Prioritising-hydrogen-use-for-UK-transport.pdf
4. DNV (2022) The Power of Optimism: Managing scale and complexity as the energy transition accelerates. https://www.dnv.com/power-renewables/energy-industry-insights/index.html
5. DNV Hydrogen Forecast to 2050, June 2022

Magnus Killingland, Segment Lead H2&CCS Northern Europe at DNV, has over 17 years of experience with innovative, sustainable and smart energy solutions and systems for deep decarbonisation. This covers both techno-economic know-how, and a broad understanding of policies and regulations for business cases and energy technology development. His expertise covers a range of emerging technologies such as carbon capture, sustainable electro- and biofuels with carbon use, green hydrogen from offshore and onshore wind power, and low carbon blue hydrogen and ammonia with carbon capture and storage value chains.

As the Segment Lead for Hydrogen and CCS in Northern Europe at DNV, Killingland is advising on strategies and de-risking investment decisions for a fast and safe energy transition, discussing and analysing business models and technology development with IOCs/NOCs, utilities, OEMs, regulators, and various stakeholders. He is chairing the World Forum Offshore Wind Hydrogen Committee and is part of hydrogen working groups in the World Economic Forum TopLink network, the Norwegian-German chambre of commerce, CIGRE H2 Working Groups, and WSCBD World Business Council for Sustainable Development.

Killingland is involved in projects covering introduction to safety, green finance with power purchase agreements and Levelized Cost evaluations with CfDs/CCfDs – Contracts for Difference. This includes seeing the larger picture with regulation and market design aspects and total cost of ownership, together with the abatement costs of emission reductions with LCA-methodology. Magnus also co-authored the DNV Hydrogen Forecast to 2050 report, launched June 2022, and has presented this in various conferences and industry networks.