The green future is purple!

05/12/2019

There is a growing international consensus that clean hydrogen will play a key role in the world's transition to a sustainable energy future. It is crucial to help reduce carbon emissions from industry and heavy transport, and also to provide long-term energy storage at scale.

Hydrogen is a versatile energy carrier that can be produced from a wide range of sources and used in many ways across the entire energy sector. It could become a game-changer in its low-carbon form, but its widespread adoption faces challenges.

The International Energy Agency is preparing a major new study to assess the state of play for hydrogen, its economics and potential. Due to be published in mid-June, the report will be a key contribution to Japan's 2019 Presidency of the G20.

Researchers have found that clean hydrogen still costs too much to enable it to be widely deployed. Prices may not come down sufficiently until the 2030s, according to some estimates. But despite the uncertainty surrounding the future of clean hydrogen, there are promising signs that it could become more affordable sooner than expected.

Where the hydrogen comes from is important. At the moment, it's mainly produced industrially from natural gas, which generates significant carbon emissions. That type is known as "grey" hydrogen.

A cleaner version is "blue" hydrogen, for which the carbon emissions are captured and stored, or reused. The cleanest one of all is "green" hydrogen, which is generated by renewable energy sources without producing carbon emissions in the first place.

CO2 emissions may make grey hydrogen more costly

At the moment, grey hydrogen is cheaper than the other two. Its price is estimated to be around €1.50 per kilo. The main driver is the price of natural gas, which varies around the world.

Too often, people assume that the price of grey hydrogen will remain at this relatively low level for the foreseeable future. That ignores the IEA's projection of a structural rise in natural gas prices due to market forces. And more important, it fails to take into account the potential volatility of gas prices, as demonstrated in Europe, where they have become more linked to spot markets.

What's more, grey hydrogen's CO2 emissions carry a cost in an increasing number of jurisdictions around the world. In the European Union's emissions trading system, the price of CO2is in the range of €20 to €25 per ton.

A growing number of European Union countries want to establish a minimum CO2 price that will gradually increase to around €30 to €40 per ton over the next 10 years. That means the cost of CO2 could eventually add almost €0.50 to the price of a kilo of grey hydrogen in Europe, bringing the total price to around €2.

In an increasingly carbon-constrained world, we should also not lose sight of the diminishing social acceptability of continuing to emit CO2 while producing and using grey hydrogen in industry.

Blue hydrogen can narrow the gap

The price of blue hydrogen is also mainly influenced by natural gas prices. But its second-most important driver is the cost of capturing and reusing or storing the carbon emissions.

Current estimates put the price of carbon capture, utilization and storage (CCUS) in the range of €50 to €70 per ton of CO2. The price is lower in specific cases like ammonia production .

This puts the current price of blue hydrogen in Europe a bit above the price of grey hydrogen, but that gap will shrink if the price of CO2 emissions increases further in the coming years.

Once the process of CCUS in blue hydrogen plants is scaled up and standardized, the cost is likely to come down.

Innovation should eventually open up more opportunities for utilization of CO2 in industry, which may further push down the cost of CCUS. Those developments could bring the price of blue hydrogen closer to that of grey hydrogen sooner than is often assumed.

Green hydrogen's price depends on renewables

Different factors come into play for the priceof green hydrogen, which is estimated to be between €3.50 and €5 per kilo at the moment.

The first one is the cost of electrolysis, the process through which hydrogen is produced from water using renewable energy. Total global electrolysis capacity is limited and costly at the moment. Most industry experts expect that a significant increase of electrolysis capacity will reduce costs by roughly 70% in the next 10 years.

The most critical factor for the cost of green hydrogen, however, is the price of the green electricityused in the electrolysis process.

The cost of generating solar and wind energy has come down spectacularly in the past decade. That should prompt caution about what will happen to the cost of green hydrogen in the future. Similarly to wind and solar, it may come down a lot faster than experts now expect.

What about purple then? That is of course the natural colour of Hydrogen!