11 minute read 18 May 2021
Ing storage tanks on a roadside

Why hydrogen is starting to get the green light in global renewables

By David Roxby

EY-Parthenon UK&I Energy Sector Lead; Associate Partner, Strategy and Transactions, Ernst & Young LLP

Trusted management advisor. Energy industry specialist. Committed to better outcomes. Father, cyclist, and believer in technology, business and people to make a difference.

11 minute read 18 May 2021

RECAI 57: we examine initiatives in different regions to find out how low-carbon hydrogen might be used in pursuit of net zero.

This article is part of the 57th edition of the Renewable Energy Country Attractiveness Index (RECAI).

In brief
  • Green hydrogen is seen by investors, developers and politicians as an enabler to meet net-zero targets.
  • With its vast domestic market, large state-owned companies and abundant renewable resources, China could become a green hydrogen superpower.
  • A market for green hydrogen is opening up, but cost competitiveness remains a barrier to scaling up.

Green hydrogen is currently attracting enormous levels of interest from investors, developers and politicians as an enabler to meet net-zero targets. As part of efforts to support economic recovery from the COVID-19 pandemic, policy-makers are giving a bigger role to the energy transition.

Hydrogen already has a large customer base among some of the most polluting industries for carbon dioxide emissions that need to find technological solutions to reduce their footprint and improve their investors’ perception of their environmental, social and governance (ESG) credentials. Hydrogen is also seen as increasingly important for countries or regions wanting more energy independence, as the economics of hydrogen favor local production.

The potential of green hydrogen to decarbonize transport, heating and heavy industry, while also offering greater scope for long-term storage than utility battery storage, could make it a game changer for the low-carbon transition, and projects are already happening now. The 57th edition of the Renewable Energy Country Attractiveness Index (RECAI) revealed that the hydrogen industry experienced rapid growth last year, despite all the challenges of 2020. 50GW of green hydrogen electrolysis projects were announced out of a current global total of 80GW, as more countries and regions reveal ambitious clean hydrogen strategies to help them decarbonize. With many of the projects at gigawatt-scale, there is hope that their immense size will quickly bring down the cost of green hydrogen through economies of scale. BloombergNEF predicts that, with an investment of US$11t, this renewable energy source could supply up to one-quarter of the world’s energy needs by 2050 and eliminate up to one-third of global emissions.

Green hydrogen still faces a number of challenges, such as cost, scaling up renewables and electrolyzer capacity, securing offtake agreements, and a need for adaptive, regulatory frameworks. In RECAI 56, we examined these challenges in depth. This article looks at case studies from Europe and Asia that highlight how projects and initiatives are overcoming the economic and technical barriers to convert interest into reality.

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Chapter 1

Case study: a blended approach to decarbonizing heating in Europe

Cutting-edge solution mixes hydrogen and natural gas, but production efficiency must be improved.

The European Green Deal has set a target of net-zero greenhouse gas emissions by 2050. With heating and cooling in the built environment accounting for nearly 40% of the EU’s energy demand, pressure is mounting on the bloc to take significant steps forward.

Renewable fuels, such as hydrogen-blended methane, could offer a low-carbon solution that delivers heat and power at the same time. But hydrogen is costly. Innovation and technology evolution are needed for production efficiency to be improved.

One company at the cutting edge of blending hydrogen is Italian energy infrastructure company Snam. In April 2019, it became the first gas transmission system operator (TSO) in Europe to introduce a mix of 5% hydrogen by volume and natural gas into its transmission network. In December 2019, it doubled the percentage of hydrogen by volume to 10% at a trial with its natural gas transmission network in Salerno.

A blend of 10% hydrogen mixed into Snam’s total gas transported annually would result in seven billion cubic meters of H2NG (hydrogen and natural gas mixture) being introduced into the network each year. That is enough to heat three million households and would reduce carbon dioxide emissions by five million tons.

Currently, Europe is nowhere near producing enough clean hydrogen to reach such a share of overall energy consumption. However, the European Commission’s hydrogen strategy, launched last July with a target of 10 million tons of hydrogen by 2030, provides a road map for potential regulations that could increase the use of renewable hydrogen as a fuel transported by existing natural gas grid networks.

In the UK, where heating is the largest source of carbon emissions, pioneering hydrogen heating trials are in their early stages. Following the Government’s announcement, last December, of a Ten Point Plan for a green industrial revolution, all five owners of the UK’s gas distribution network operators – Cadent, National Grid, Northern Gas Networks, SGN and Wales & West Utilities — have outlined plans for how they will transition away from natural gas to delivering hydrogen instead.

Feasibility studies will be needed, because [green hydrogen and methane] are completely different, and hydrogen is much more demanding in terms of the quality of the pipeline and compressors
Giacomo Chiavari
EY-Parthenon Italy Strategy Leader

To turn aspirations into real usage, more than 650 households and commercial buildings in the village of Winlaton, in Gateshead, Tyne and Wear, will trial a natural gas blend of up to 20% hydrogen over a 10-month period this year. The UK Government plans to invest up to £500m (US$695m) to create a hydrogen neighborhood in 2023, a hydrogen village in 2025 and, before 2030, a town running entirely on hydrogen.

“It is important to remember, though, that the blending of green hydrogen into methane is not going to be linear,” warns Giacomo Chiavari, EY-Parthenon Italy Strategy Leader, EY Advisory S.p.A. “Feasibility studies will be needed, because the two gases have extremely different features; and hydrogen is much more demanding in terms of the standards the pipeline and compressors need to meet. Additionally, every time the mix is changed, the consumption points would need to adapt and evolve in parallel. A massive transition of the network from methane to hydrogen will need to address many technological obstacles.

“Pragmatically, localized generation of hydrogen, close to the largest consumption point, could be a solution to simplify the distribution.”

Green hydrogen offers enormous potential as an enabler for the decarbonization of energy consumption in Europe. However, given the enormous challenge — and that the technology is still in its early stages — green hydrogen is unlikely to be a short-term silver bullet. Unless incentive schemes fill the profitability gap of the technology.

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Chapter 2

Case study: how China could power a green hydrogen revolution

The world’s largest hydrogen producer is playing a key role in the technology’s global development.

As green hydrogen seeks a breakthrough — needing demand and supply-side support to be scaled up and for production costs to fall — all eyes have turned to China. The nation’s vast domestic market, large state-owned companies, distinguished research institutions and abundant renewable resources give the nation the building blocks to be a green hydrogen superpower.

China is already the world’s largest hydrogen producer, although much of this production comes from fossil fuels. With the nation vowing to reach net zero by 2060, however, green hydrogen is expected to play an integral role in the transition, with the China Hydrogen Alliance projecting that it will account for 20% of the nation’s energy mix.

If China is to reach its lofty renewable hydrogen goals, a coordinated approach will be crucial for the nation to capitalize on its economies of scale and foster the industry collaboration that is paramount for an emerging technology. Established in 2018 by the National Energy Group, the China Hydrogen Alliance serves as a link between the key players in this nascent industry, catalyzing action to solve technological gaps in the value chain.

With more than 100 members, the Alliance has established a “hydrogen community” and is playing a multifaceted role in renewable hydrogen’s development by spurring innovation, enabling production and collaboration, and charting a path for the sector’s progress.

It has established think tanks, promoted research collaboration between industry and universities, started building a big-data platform, initiated manufacturing and transportation of equipment and basic materials to large-scale enterprises, prepared a technical road map for a hydrogen energy strategy, and defined the standard for green hydrogen in China. Furthermore, it is exploring the establishment of a green hydrogen innovation center.

The China Hydrogen Alliance serves as a link between the key players in this nascent industry, catalyzing action to solve technological gaps in the value chain. It is playing a multifaceted role in renewable hydrogen’s development by spurring innovation, enabling production and collaboration, and charting a path for the sector’s progress.

With the China Hydrogen Alliance pushing forward collaboration at the industry level, the sector has also had policy support, particularly across the value chain for hydrogen fuel cell vehicles. A handful of cities and city clusters has been selected as fuel cell vehicle demonstration cities, with each city cluster eligible for up to ¥2b (US$308m) under an incentive framework. This depends on how successful they are at meeting targets, such as minimum range and putting at least 1,000 vehicles into the city cluster, and technical parameters on the power and power density of fuel cells. Additionally, ¥200m (US$30m) is available to each city cluster for achieving refueling infrastructure targets — such as the provision of at least 5,000 metric tons per year of hydrogen — and reducing the cost of hydrogen at the pump to below ¥35/kg (US$5.3/kg). In total, the estimated financial support for the program is close to ¥10b (US$1.5b).

While China drives ahead with production of renewable hydrogen, it is also playing a key role in the expansion of hydrogen internationally. The China Hydrogen Alliance has cultivated international cooperation in the sector, hosting workshops with Japan, the US and Europe. Looking ahead, China — with its vast renewable resources, economies of scale and competitive labor market — has all the ingredients to become a major exporter of green hydrogen. Expansion of production in the coming years will lead to a greater division of labor, promote the specialization of production, and improve labor proficiency and production efficiency. The last piece of the puzzle, though, would be a breakthrough in large-scale, ultra-long-distance hydrogen storage and transportation technology.

Technological innovations are still needed to make green hydrogen cost competitive, but China is on the right path. It is already the world’s biggest producer of solar and wind energy, and if it can hold its lead in green hydrogen production, the nation will be set to dominate the global renewable energy supply chains and technologies.

Summary

Green hydrogen is seen as a game changer for the low-carbon transition. With the right investment, it could supply up to one-quarter of the world’s energy needs by 2050 and eliminate up to one-third of global emissions. Projects and initiatives in China and Italy offer a small snapshot of how different parts of the world are working to overcome technical, economic and policy issues, and shift the energy balance toward net zero.

About this article

By David Roxby

EY-Parthenon UK&I Energy Sector Lead; Associate Partner, Strategy and Transactions, Ernst & Young LLP

Trusted management advisor. Energy industry specialist. Committed to better outcomes. Father, cyclist, and believer in technology, business and people to make a difference.