By Khushboo Goyal, Associate Director, REGlobal
The global demand for green hydrogen is expected to increase fivefold, reaching 528 million tonnes by 2050 as per the International Energy Agency’s net-zero scenarios. This surge is expected to transform the industry into a $0.5 trillion market. Given its potential to decarbonise hard-to-abate industries such as cement, steel, fertilisers and chemicals, there was significant excitement regarding the evolving global green hydrogen landscape at the recently held 10th edition of the Berlin Energy Transition Dialogue (BETD). Representatives from various countries discussed their respective countries’ plans and projects in the green hydrogen space. They also shared insights gained from their initial experiences. Many concerns related to cost, offtake, financing and standards were highlighted as crucial areas that need attention for green hydrogen development to scale up worldwide.
This article highlights the key cost trends in the sector, identifies the bottlenecks in establishing a global economy and provides the outlook for the global green hydrogen landscape based on insights and deliberations at the conference…
The high cost of green hydrogen versus grey hydrogen is perhaps the most critical bottleneck hindering the adoption of green hydrogen, both domestically and for export. Since the green hydrogen sector is at a nascent stage, emerging markets worldwide are competing to become the most affordable exporters for western European countries such as Germany and France. To address this challenge, various governments are introducing enabling policy measures and collaborating with industry stakeholders and financial institutions to bring down costs. In a panel discussion, Jonas Moberg, chief executive officer, The Green Hydrogen Organisation, remarked that while green hydrogen is too expensive compared to carbon-intensive fuels, the high production costs are rapidly decreasing. He further highlighted the issue of sale price uncertainty.
A recent report by Alvarez & Marsal analyses the competitiveness of various countries in producing green hydrogen based on four factors – renewable energy resources; manufacturing, engineering and construction competitiveness; the electricity ecosystem; and the cost of capital. With renewables being the major fuel for green hydrogen production, regions with ample renewable energy resources such as wind and solar power available at low prices are well positioned to emerge as competitive markets for green hydrogen production. Therefore, according to the report, renewable energy-rich countries such as the UAE, followed by Saudi Arabia and India, could produce green hydrogen at the lowest levellised cost of hydrogen (LCOH) among the 10 countries analysed. With LCOH projected to reach $1.7 per kg for the UAE, and $1.8 per kg for both Saudi Arabia and India by 2030, these countries are expected to capture a significant share of the global green hydrogen export market in the coming years. Chile, the US, Kazakhstan and Oman are also expected to emerge as key exporters of green hydrogen. Meanwhile, countries within the European Union, Japan and South Korea are expected to be early offtakers or importers of green hydrogen.
One of the countries highlighted in the report, Oman, has identified 65,000 square km of land for renewable energy and hydrogen development. The country has a target to reach a hydrogen production capacity of 1 million tonnes by 2030, catering to both local needs and export demands in the Far East and Europe. Oman has been successful in auctioning and signing agreements for green hydrogen production across around 2,000 square km of the identified land, with more projects underway. Salim Al Aufi, Oman’s minister of energy and minerals, explained in a panel discussion that in order to bring down costs, common infrastructure is being developed in Oman to supply water to developers and transport the produced green hydrogen to ports.
Another renewable-rich country with the potential to become a major green hydrogen exporter is Namibia. With ample land available and a small domestic demand, the country can meet its target of producing 300,000 tonnes per year by 2030. It will rely on desalinated sea water to produce green hydrogen. According to Tom K. Alweendo, Namibia’s minister of mines and energy, the government is planning to become an investor in green hydrogen project development with some share in equity. The country’s investment proposal includes not just green hydrogen production but also water desalination, he highlighted in the discussion.
Fortunately, governments and industry stakeholders recognise that green hydrogen production cannot be viewed in isolation. The majority of projects worldwide are now being planned with consideration for various other factors such as water requirements, the availability of renewable energy, and the storage and transportation of green molecules. The same sentiment was echoed by Nicola Beer, vice-president of the European Investment Bank, when I asked her about the cost and bankability of green hydrogen projects. Her recommendation was to consider green hydrogen projects as a complete package, encompassing not only green hydrogen production but also transmission grids, offtakers, location of offtakers to determine feasible storage and transport options as well as the availability of skilled manpower. Further, the financing of green hydrogen projects should take all these parameters into account. When discussing the bankability of such projects, she remarked, “In this early stage of green hydrogen project development, it is important to have blended finance with public money provided as grants together with loans and other financial instruments such as venture debt or others.”
Despite the immense potential of green hydrogen in decarbonising energy-intensive industries and transport sectors, there are concerns regarding demand in many markets. It is like the “chicken and egg” scenario, where the high cost of green hydrogen hampers demand while the low demand impacts scaling-up and cost reduction through economies of scale. Even in the US, there are no positive signs of increasing domestic demand for green hydrogen, as highlighted by Rachel Fakhry, policy director for the Emerging Technologies, Climate and Clean Energy Program, at the Natural Resources Defense Council, in the panel discussion. This is despite the country’s landmark Inflation Reduction Act, which provides large subsidies for green hydrogen production, leading to expectations of exports to European and Asian markets.
Enabling policy measures are required to address this issue as elaborated by Francesco La Camera, Director-General, International Renewable Energy Agency. When questioned about steps to increase green hydrogen demand, he emphasised the need for governments to formulate policies that drive demand in the market and attract investments in the sector. He further recommended phasing down demand and supply of fossil fuels to create favourable market conditions for the uptake of green hydrogen molecules.
Apart from cost and demand, another concern raised by various stakeholders is the lack of uniformity in green hydrogen definitions and standards worldwide, which can create barriers for countries looking to become large-scale exporters. This raises the need for international collaboration among all stakeholders in the green hydrogen ecosystem, ranging from policymakers to developers, financiers, technology providers as well as the scientific community. Further, there needs to be ample dialogue among different markets, both importers and exporters, to formulate a uniform and universal green hydrogen standard. Such a standard can be adopted across all future projects, benefitting both producers and consumers. These standards also need to be diverse and cover various aspects related not only to emissions but also to efficiency, safety, storage, transport, water quality and others. This clarity will help in accelerating investments and scaling up project deployment, while mitigating potential future risks for developers of these capital-intensive projects.
Net, net, the global green hydrogen sector is rapidly evolving in terms of cost economics, policy environment, offtake readiness and investments in large-scale projects across various markets. While the pace of development varies from one region to another, the goal remains the same: to reduce production costs for export to Europe and other large importers. What remains critical for export-driven countries, going forward, is to establish enabling policy frameworks through financial and non-financial means to streamline processes, ease permits and reduce costs. Further, credible offtake arrangements must be established to create a market for green hydrogen. Lastly, uniform standards need to be urgently deliberated upon and finalised by all import and export markets to facilitate green hydrogen trading on a global scale.
BETD takes place in Berlin every year at the invitation of the German government and is organised jointly with the German Renewable Energy Federation, the German Solar Association, the German Energy Agency and consulting firm eclareon.
