Can Hydrogen Become the Next Cost-effective Alternative in the Energy Sector?

With the scaling up of hydrogen production, distribution, and equipment along with component manufacturing, the costs of hydrogen technologies used in various applications will decline radically in the coming years.

Costs associated with hydrogen technologies used in various applications, including heat and power, will decline radically over the next decade with increasing hydrogen production, distribution, and equipment and component manufacturing.

For some applications, hydrogen will become competitive with other low-carbon alternatives and traditional options. As part of concerted decarbonisation goals, many governments have developed detailed strategies for deploying hydrogen solutions. The energy industry is paying attention to the sharp improvements in cost drivers associated with renewable hydrogen production and the versatile role hydrogen plays in future energy systems.

Although the hydrogen council actively promotes hydrogen as a crucial element of future industrial decarbonization worldwide, it acknowledges that new projects have not yet been approved despite increased interest and more than 30 significant investments in sectors like heavy-duty trucking, rail, and steel production using low-carbon or renewable hydrogen. This is due to the lack of suitable policy and regulatory frameworks and visibility on near- and long-term economic viability and industry readiness. The group suggests governments can boost the hydrogen economy with increased coordination, standardisation, infrastructure investment, and providing incentives.

On the other hand, the energy industry’s role should focus on establishing a market. This is possible by reducing market uncertainty, concentrating on scaling applications, and advancing technologies creating significant investment improvement. For instance, scaling fuel cell production can reduce costs by a considerable percentage and can impact various end-use cases.

Although the hydrogen industry greatly depends on the region, for applications, the eventual costs of renewable hydrogen are vital. Despite renewable hydrogen from electrolysis costs about six kilograms, in the short term, hydrogen could become competitive in transportation, mostly for large vehicles with long ranges such as trains, coaches, or forklifts. If hydrogen production and distribution costs continue to decline, hydrogen solutions could compete with other low-carbon alternatives in simple cycle hydrogen turbines for high power, hydrogen boilers, and industrial heating. There are also various power applications included with this.

Fuel cells for combined heat and power (FC-CHP) is an application where hydrogen generates power from fuel cells. Later, it recovers and uses the by-product heat for hot water, space heating, or cooling in residential and commercial buildings. Compared to both low-carbon and natural gas, FC-CHP is a viable alternative for a house in the near future with reduced hydrogen costs.

Industrial heat is another application. Electrification will continue to be the lowest-cost decarbonisation option for low-grade heat. Therefore, hydrogen will not play a significant role. Biomass is an option but faces supply constraints, and CCS will be limited to regions with access to carbon dioxide storage for mid and high-grade heat. In places where these are not alternatives, hydrogen and electric heating will be the only low-carbon solutions.

Although the hydrogen industry greatly depends on the region, for applications, the eventual costs of renewable hydrogen are vital.

 

Another power application includes generators. Although backup generators primarily use diesel or natural gas, hydrogen fuel cell generators may be viable alternatives, particularly in remote locations where batteries and renewables are not viable due to suboptimal conditions. The two primary factors influencing the hydrogen generators’ costs are the fuel cell and tank systems' costs and hydrogen production and distribution costs.

Research suggests that fuel cells and hydrogen tanks’ costs will decline by 70 per cent in the near future, driven by larger market volumes of fuel cells and tanks across various applications like transportation. At the same time, the cost of hydrogen supplied will decline by 20 per cent to 40 per cent in the coming years, making it possible for hydrogen to be dispensed from 4.50 USD per kg to six USD per kg. Turbines for grid power generation also make another application.

Systems using hydrogen as a fuel for power generation should provide flexible energy to ensure stability and resilience. Although several power-to-gas systems are entailing the conversion of renewable to gaseous energy carriers via electrolysis, many remain small in scale. However, many large renewable hydrogen projects have been proposed.

The cost of electrolysis has significantly decreased, and hydrogen has been combusted in gas turbines at low volumes with grey hydrogen derived from fossil fuels. This led major gas turbine manufacturers to develop gas turbines that could combust 100 per cent hydrogen for peaking and baseload power applications as a decarbonised alternative to natural gas.

Many reports indicate that low-carbon base-load hydrogen supply will be relevant only in regions with limited renewable potential and where alternatives such as fossil fuels with direct CCS or biomass are not an option. In such instances, firms could import hydrogen and use it to power hydrogen turbines.

When paired with combined cycle generation, the economies for hydrogen gas turbines are optimal if units offer short-term, multi-hour balancing or multi-day/week generation, which is sometimes the case when renewable generation is low. This helps hydrogen act as a buffer and long-term storage option for the power system.

Storage of large hydrogen volumes will be feasible at a low cost, indicating that, compared to batteries, its impact of storage time on overall cost is more limited. As a result, hydrogen should offer advantages over batteries, especially for longer storage durations. Despite a few disadvantages, businesses should use hydrogen-based power for a high-value flexible generation. Additionally, hydrogen baseload power generation for in-depth decarbonisation in situations with limited renewable potential will require strong policy support.