bneGREEN: Ukraine war boosts green hydrogen to the tune of $73bn

bneGREEN: Ukraine war boosts green hydrogen to the tune of $73bn
Hydrogen transport trailer. / Carbon Tracker
By Richard Lockhart in Edinburgh October 28, 2022

The war in Ukraine has prompted new investment in green hydrogen to reach over $73bn as costs fall, making fossil fuel-produced hydrogen uneconomic as gas prices soar.

High and volatile gas prices mean that $100bn of ‘dirty’ hydrogen assets are at risk of becoming stranded by 2030, green think-tank Carbon Tracker said in a report.

Since Russia’s invasion of Ukraine in February, the price of gas, a major feedstock for producing fossil fuel-produced hydrogen, both blue and grey, has soared by more than 70% on the international markets, triggering an energy crisis and pushing lawmakers worldwide to urgently source alternative sources of fuel, Carbon Tracker said.

The report found that the surge in the gas price has caused the levelised cost of fossil-produced hydrogen to jump. This has accelerated investment and plans to build out more clean hydrogen assets as interest in the fuel rises, amid technological advances in its manufacture and falling costs.

The report said that 25 countries, mostly drawn from the Global North, have in just a few months committed $73bn of public and private funds to the manufacture of green hydrogen, mostly in response to the conflict-induced structural changes.

“Though green hydrogen is not the silver bullet to the climate crisis, it offers part of the solution if used in a targeted way for specific industries and offers an attractive solution to bridging the thorny issue of energy intermittency anxiety in the power sector, alongside advanced battery technology and the use of smart grids,” said Kofi Mbuk, senior cleantech analyst and author of the report.

Germany, Morocco and the US have pledged most, the report finds. Production, on the other hand, will be dominated by the Global South, which will be responsible for 50% of total world production by 2050, with South Africa, Morocco and Chile controlling most at 68mn tonnes.

Conversely, more than $100bn of fossil-based hydrogen assets, particularly those tied to gas, could become stranded before 2030 due to high gas prices, supply insecurities and commitments to reduce natural gas usage in line with net-zero targets. The report says Europe and Asia will be most exposed to stranding as new fossil-hydrogen assets (8mn tonnes) come on stream from this year.

“Green hydrogen will play a crucial role in the energy transition but applications will need to focus on the agricultural sector (fertilisers) and heavy industry (steel, heavy transport, shipping, mining) until tech innovation for electrolysers improves and fresh water usage is cut. Clean hydrogen could effectively be used to plug energy intermittency issues for solar and wind power as supply of those renewables grows exponentially,” Mbuk said.

Yet there are problems to be addressed in the ramp-up of green hydrogen. Reliance on massive quantities of freshwater – to split hydrogen from water – and energy inefficiencies could seriously impede the growth of green hydrogen.

A third of energy needed is wasted in production, up to a further 25% is lost when liquefying or converting to other carriers such as ammonia, while another 10% of hydrogen’s own energy is consumed in transporting the product.

Until renewable batteries become economically attractive, hydrogen can be used as a short-term measure to help solve power intermittency issues caused by renewable energy technologies, particularly wind and solar.

The report estimates that building out a green hydrogen economy will require $3 trillion of investment by 2050 if net zero is to be met. This is excluding the building of critical assets like import/export facilities, transportation (tankers), storage, pipelines and desalination plants.

Governments must put in place support mechanisms, such as green hydrogen certificates, contract for difference (CfD) schemes, tax credit and dedicated financial bodies.