Stuck in a rut: hydrogen caught in polarised ‘hope versus hype’ debate

💥Energy Flux💥 Thursday, 1st April 2021

Greetings! In today’s issue (the last of the week):

  • Polarised hydrogen debate gets stuck in ‘hope versus hype’ rut

  • Transmission lines – energy transition stories you might’ve missed

  • Energised minds – critical thinking on crucial energy issues

It’s all about hydrogen in today’s issue – the fuel of the future, or fanciful folly depending on your perspective. Sustainability consultancy E3G released a report this week that seeks to find a green-tinted middle ground in the polarised debate around the efficacy of switching parts of the UK economy to run on hydrogen.

In the hydrogen debate, detractors decry hydrogen’s huge inefficiencies and practical challenges, while supporters see it as nothing short of vital for achieving ‘net zero’.

The E3G report seeks to cut through those binary positions to identify realistic use cases while warning against pursuing dead-end options being pushed by vested interests. It is worth reading in full, but here is my pick of the key recommendations:

  • On the production side, the UK should focus exclusively on green hydrogen (from renewables) rather than taking a twin-track approach that includes the blue variety (derived from fossil gas)

  • This requires parallel rapid growth in offshore wind, electrification, efficiency and the circular economy

  • In end-use applications, UK should focus on high temperature heat in industry, shipping and aviation, and long-duration electricity storage — not domestic heating

  • Hydrogen pipelines should be built around secure demand and supply, not around the question of how existing gas assets can best be kept functioning

This last point is crucial. The pro-hydrogen narrative is heavily influenced by the natural gas industry. Pipeline owners and regulated gas network operators are keen to maintain utilisation rates and avoid writing down the value of their assets.

Regulators almost certainly won’t let them jack up per-unit rates to compensate for fewer volumes flowing through their assets if net zero squeezed demand — so hydrogen ‘blending’ is a great way to shield gas industry incumbents from the economic threat posed by decarbonisation.

E3G places emphasis on identifying areas where hydrogen offers the best ‘value-add’ — and blending is not one of them. Mixing H2 with pipeline gas will be “challenging” over a certain share due to infrastructure constraints and the potential that “the quantities of green hydrogen that would be required never emerge”, the report states.

Similarly, the blue-versus-green debate is becoming a flashpoint in the fossil-versus-renewables cold war. Upstream operators need to convince capital markets that their prized 2P resources will not be stranded by the net zero push, and subsidised blue hydrogen provides the perfect cover.

North Sea oil and gas lobbyists want to convince government that ‘blue is cheaper than green’ in a bid to secure subsidies for steam methane reformation (SMR) with carbon capture, to convert CH4 into ‘low carbon’ H2. That phrase has caught on, with the UK government conflating blue and green under the misleading umbrella of ‘clean’ hydrogen.

On this, E3G is unequivocal:

None of which is to say hydrogen has no future whatsoever in the UK, or anywhere else for that matter. Using green hydrogen to replace dirty ‘grey’ H2 (made from gas, without carbon capture) in refineries is a good place to start attacking industrial emissions.

Wider industrial uptake of green hydrogen could cluster around centres of production (e.g. coastal sites near offshore wind farms). Since transporting H2 over long distances is problematic and inefficient, hydrogen clusters could make a lot of sense. But beyond that, who knows? Clusters might become the high water mark of hydrogen adoption.

Big vision, small budget

Cue yesterday’s big hydrogen ‘news’: Danish wind developer Ørsted’s grand unveiling of SeaH2Land, an ambitious vision to roll out 2 GW of new offshore wind capacity in the Danish North Sea powering a 1 GW electrolyser by 2030. This, in turn, would feed a Dutch-Flemish North Sea industrial port cluster to enable “sustainably-produced steel, ammonia, ethylene, and fuels in the future”.

Big industrials in the area – ArcelorMittal, Yara, Dow Benelux, and Zeeland Refinery – currently use 580,000 tonnes per year of grey hydrogen. The electrolyser would initially replace around 20% of that, growing to 1 million tonnes by 2050 – equivalent to roughly 10 GW of electrolysis, according to Ørsted.

There’s a long way to go, however. Ørsted and partners need to conduct a feasibility study and then pow-wow with regional authorities over “the framework and policies needed to support” such a development – i.e. they’ll lobby for subsidies to make it a reality. Nobody will be cutting a big cheque any time soon to bankroll construction of SeaH2Land (or any other proposed hydrogen cluster).

Therein lies the rub on hydrogen: who ultimately pays to build out grand visions of clean steel and zero-carbon cement production? These are among the hardest segments of the economy to decarbonise, yet solutions such as SeaH2Land won’t make economic sense without a triple-figure carbon price — which is not likely this side of 2030. Maybe that’s where targeted support, for example in the form of Carbon Contracts for Difference, will play a vital bridging role.

Unleashing potential

If the economics can be cracked, green hydrogen uptake could unlock some exciting possibilities. Next-generation floating offshore wind turbines, the next frontier in offshore wind development, could benefit enormously: freed from costly and complex long distance electrical connections to shore, floating offshore wind farms could be developed exclusively for in situ hydrogen production, with H2 shipped to coastal demand centres (perhaps in the form of ammonia).

Financing a dedicated offshore wind-powered hydrogen production facility would require cast-iron contractual certainty that a credit-worthy offtaker would absorb the required volumes, and at the right price. Only then can projects leverage debt finance to cover up-front construction costs.

In short, green hydrogen proponents will need to de-risk the entire value chain and apportion risk carefully among industry participants before big money lenders will make a play. This is exactly what the liquefied natural gas industry strived over many decades to achieve; LNG is only now on the cusp of becoming a mature commodity characterised by trade transparency and deep liquidity.

Producing and shipping LNG consumes energy, but the losses are nothing compared with those inherent in hydrogen. All things considered, the path to commercialisation of H2 will probably be very long, slow and strewn with obstacles. All the more reason to follow E3G’s advice and focus resources on those applications where hydrogen “adds the greatest value for climate, jobs, and a strong economic recovery”.

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Transmission lines

Energy transition stories you might’ve missed
  • Australian scientists ‘achieve breakthrough’ with renewable-powered carbon capture. Novel electrochemical process “can store carbon dioxide in water with the power of solar or wind, while also producing by-products such as green hydrogen and calcium carbonate”. Thought for the day: Could wind-powered CCS forge a truce in the fossil-green energy war?

  • BMW, Volvo and Google vow to exclude use of ocean-mined metals. This will come as a disappointment to newly listed deep-sea miner Green Minerals, which is trying to tap demand for ethically-sourced rare earth elements. As flagged in Energy Flux, the company hasn’t said much about impacts on marine ecosystems

  • Methane pollution soars in US as shale drilling resumes. New research shows a strong correlation between oil price movements and venting of associated gas – as crude rises, so do CH4 emissions

  • SEC allows Chevron shareholders to vote on climate resolutions at this year’s AGM. Wall Street regulator breaks with protocol to reject oil major’s argument that setting carbon reduction targets amounts to ‘micromanagement’

  • More on Santos’ Barossa gas mega-project: the field contains more CO2 than any upstream gas currently made into LNG, according to the IEEFA. So much so, in fact, that “most of it will have to be separated and vented offshore to meet the requirements of the Darwin LNG plant it will be piped to”. (For chapter and verse on Santos’ risky Barossa LNG gamble, see yesterday’s Energy Flux)

  • Commodity trader Gunvor sets Scope 1 and 2 emissions reduction targets and sets up new renewables-dedicated arm, Nyera, with $500 million war chest. Nyera’s investments will target “carbon capture and storage, renewable fuels, renewable power, and alternative fuels, including ammonia and hydrogen”

  • Renewable hydrogen systems manufacturer Ways2H brings online Tokyo facility to convert sewage sludge into hydrogen. Japan has until now focussed on green hydrogen/ammonia imports due to the island nation’s geology, so this marks a small departure for Tokyo

  • G20 needs more than 3,500 GW of flexibility to enable 100% renewable electricity, according to new research commissioned by Wärtsilä. World’s wealthiest nations will need 2,594 GW of energy storage and 933 GW of flexible gas power capacity “capable of running on future fuels”, says Finnish technology company selling precisely that kit

  • Record-breaking wind generation pushes power prices negative in major central US power market. Wind penetration on Southern Power Pool surpasses 80% for the first time with peak generation of >21 GW on 29 March, pushing day-ahead power prices to minus $14.68/MWh. By contrast, SPP saw prices exceed $4,000/MWh during February’s winter blast

  • Utility-scale floating solar power project offshore Greece and Cyprus gains momentum with new partnership deal. MP Quantum Group to develop pilot plant using Ocean Sun’s proprietary technology in region with “excellent solar irradiance”. Floating photovoltaic system developers claim improved economics thanks to cooling effects of sea water on PV panels

Energised minds

Critical thinking on crucial energy issues

Electricity market reform: ‘UK government must stop the drift to central planning and let innovators drive net zero’ — Energy Systems Catapult calls for an end to the Contracts for Difference (CfD) support mechanism that underpinned the UK’s ascent to offshore wind world leadership status, as well as the Capacity Market that rewards dispatchable back-up generators for sitting on stand-by. “Government-led contracting for the mass roll-out of low-carbon electricity risks stifling the potential of new digital and smart technologies, making the transition to net zero by 2050 much harder,” a new Catapult report says. It calls for “reformed energy markets with more accurate, real time pricing and a new decarbonisation obligation.”

‘Hold on to your seats. FERC just hit the fast forward button on the clean energy transition’ — Demand-side response is finally about to come of age in federally-regulated US power markets thanks to a new directive preventing states from halting its deployment, claim Allison Bates Wannop and Jon Wellinghoff of distributed energy resources (DER) technology platform Voltus. “If demand response were to meet only 10% of peak load requirements, California and Louisiana could have avoided their blackouts. Texas could have kept on more power — possibly enough load to have avoided the worst aspects of the energy crisis.”

‘Big Oil's push into offshore wind could threaten the long-term viability of the sector’ — Paying billions for seabed leases puts pressure on the likes of BP to cut corners to save money, which could ultimately make offshore projects overly expensive to insure, writes Fraser McLachlan of specialist renewable energy insurer GCube. “[W]hile... the likes of BP are willing to bid billions for seabed leasing, there are concerns that [they] may have overbid — raising the cost of developing their projects.”

And finally...

US shale oil producer Marathon Oil raised eyebrows by promising to direct at least 30% of future cash flow towards “investor friendly purposes”:

That’s all for this week – Energy Flux returns to your inbox on Monday. Happy Easter everyone!