‘Green’ hydrogen – made from renewable energy sources – is seen more and more as the holy grail in the transition to a carbon-neutral economy. With a wide range of applications, green hydrogen could reduce global greenhouse gas emissions by a third in the coming decades at a reasonable cost, making it an attractive investment option. Thibaud Clisson and Julien Bouyssou explain.
We believe hydrogen will be crucial in meeting the environmental challenges created by global warming. In 2021, some 30 countries delivered a roadmap for 2030 that involved more than USD 300 billion in public and private investment in 224 hydrogen-related industrial projects, more than half in Europe. Governments alone are planning to invest USD 70 billion in these projects by 2030.
However, hydrogen – the lightest gas – faces challenges:
Production costs. According to BloombergNEF, the cost of green hydrogen fell by 40% from 2015 to 2020. It is expected to fall further – by up to 85% – by 2050. If these forecasts are accurate, it will be competitive with ‘grey’ hydrogen produced from natural gas.
Indeed, in parts of Europe, the Middle East and Africa, green hydrogen is already cheaper than grey hydrogen. It should be noted that the rising cost of natural gas due to the Ukraine war has improved the economics of sustainable hydrogen – investments are now paying off much faster than expected – and could speed the ramp-up of the hydrogen economy.
Infrastructure. The growth of hydrogen-based transport will require infrastructure development such as fuelling stations as well as storage capacity. Projects which aim to demonstrate the potential of power-to-gas are already underway like the GRHYD programme in France.
Production. Whether by the steam reforming of natural gas or the gasification of coal, some 95% of all hydrogen is still produced using fossil fuels.
- ‘Grey’ hydrogen (reforming of natural gas) has an unfavourable carbon footprint.
- ‘Blue’ hydrogen, where CO2 emissions are captured for re-use or storage, has a better, but still unfavourable, footprint, meaning it will challenging for it to play a key role in the energy transition.
- The most environmentally friendly option en route to net zero is ‘green’ hydrogen, produced by the electrolysis of water using energy from renewable sources.
The global market for hydrogen production is expected to reach USD 201 billion in 2025, compared to USD 130 billion in 2020.
While the industrial uses of hydrogen such as ammonia production and the refining of petroleum products still account for nearly all of its current consumption, other applications are emerging:
- Mobility. Vehicles equipped with fuel cells (FCVs) emit only water vapour, which considerably reduces their carbon footprint. From individual cars to road freight, the market for fuel cell vehicles is expected to reach USD 6 billion by 2028, compared to just USD 0.57 billion in 2021.
- Decarbonising electricity production. When combined with renewable energy sources, it can be stored and used later to produce electricity on demand (‘power-to-power’), or injected into local gas networks (‘power-to-gas’) to supplement natural gas.
Investing in ‘green’ hydrogen
The European Union plans to invest EUR 500 billion over 10 years in ‘green’ hydrogen and aims to reach an electrolysis capacity of 40 gigawatts (GW) by 2030, compared to less than 0.1GW today.
In the US, the 2020 Hydrogen Program Plan includes significant efforts to decarbonise hydrogen.
Finally, China announced a megaproject in Inner Mongolia in 2021, with the start-up planned for mid-2023.
According to BloombergNEF, ‘green’ hydrogen could reduce global greenhouse gas emissions by one-third in the coming decades at a reasonable cost.
Achieving that will require funding to expand the uses of hydrogen, both in terms of infrastructure and innovation. BNP Paribas Asset Management has recently extended its product range with a strategy designed to address this specific funding need.