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The promise of hydrogen is to address the climate emergency by exponentially increasing Europe’s share of renewable electricity. But can commercial hydrogen be the silver bullet for the energy transition- and if so, how should energy leaders prepare for it?
The dramatic expansion of once-expensive energy technology, such as solar PV and offshore wind, shows how rapidly technology can scale to reach grid parity when supported by policy. In the case of hydrogen, there is a strong argument for assuming a technology agnostic approach – by future proofing existing systems to ensure new technology investments are compatible with the current and future clean energy mix. History shows that an industry transformation such as the clean energy transition will most likely rendera mosaic of technologies and fuels. Hydrogen is an important piece of the puzzle, but is it the only piece?
Renewables and hydrogen – a symbiotic pairing
The business case for hydrogen becomes clearer as more renewable energy comes on-stream. Splitting water into its component parts through electrolysis for hydrogen production requires huge amounts of electricity. So, the waves of excess energy that are inherent to renewables can be efficiently absorbed (avoiding curtailment costs) to generate carbon neutral synthetic fuels, such as hydrogen. In turn, when reliability is challenged, hydrogen can be deployed in thermal installations to balance the grid. For example, our ‘Atlas of 100 percent Renewables’ model reveals that for Germany to meet its energy demand with 100% clean energy at the lowest cost, a massive 68 percent of its generation mixwould come from wind. But for a share of renewables of that scale to be delivered efficiently, the system would need to be reinforced with a significant volume of flexible capacity, in this scenario13 percent battery energy storage, plus 8 percent synthetic fuels, such as hydrogen and hydrogen-based methane.
Versatility = value
In our modelling of countries’ energy systems, from Germany to Senegal (regardless of the starting energy mix) a combination of installed capacity, such as renewable energy, storage, flexible gas, and power to gas – consistently drives the most value in terms of emissions and cost, and thus total cost to society.
In the next 12-18 months, we expect an escalated discussion on ‘Power-to-X’, i.e. the umbrella term for emerging technology solutions that use surplus electricity as a feedstock to store and essentially shift energy to when (and where) it is needed. It may sound surprising, but with existing technology, it’s already possible today to deploy different types of fuels and energy in a single power plant – from heavy fueloil to100 percent synthetic carbon-neutral methane and methanol– with a very solid business case. At Wärtsilä, we are heavily engaged in maximizing the value of the installed base as well as working hard to develop our technology to burn 100 percent hydrogen.
Ultimately, technology versatility and agility are key to driving value, as the ability to adapt to different fuels, without having to change the core technology, allows energy systems to transition along optimum pathways to 100 percent renewable energy.
The €140 billion question– subsidy-free hydrogen
Creating a market where hydrogen can ultimately operate without tax-payer supportis the €140 billion question. Answering that requires consideration of all elements of the value chain, to understand the feasibility of hydrogen and how to drive cost competitiveness. To prosper, the hydrogen strategy needs transparency on the market and policy mechanisms that essentially drive public and private sector R&D investments and thus the diffusion of technology. The end game must be to create conditions where the hydrogen value chain stands up in free market conditions, just as solar PV and wind power now do. For energy leaders considering hydrogen, the future price of carbon dioxide will also be a key factor, as will the sheer volume of hydrogen available for electricity production–transport may be first in line for hydrogen as a fuel.
Fortunately, for energy decision makers, the days of making wholesale enduring ‘bets’ on new fuels or technologies - as economies did when shifting from coal to oil in the early 19th century -are over. Today, increased data transparency shows in real-time how clean energy assets will drive value as electricity market conditions change. Once along-term vision for net zero has been set out, large energy systems can be designed in anoptimal way, employing new technologies and fuels, such as hydrogen, as they reach cost parity.
To drive value, it’s critical for leaders to set out that shared vision, and then the key task is to bridge the legacy energy system to a 100 percent renewable energy future, with flexibility at the heart.
The business case for hydrogen becomes clearer as more renewable energy comes on-stream. Splitting water into its component parts through electrolysis for hydrogen production requires huge amounts of electricity. So, the waves of excess energy that are inherent to renewables can be efficiently absorbed (avoiding curtailment costs) to generate carbon neutral synthetic fuels, such as hydrogen. In turn, when reliability is challenged, hydrogen can be deployed in thermal installations to balance the grid. For example, our ‘Atlas of 100 percent Renewables’ model reveals that for Germany to meet its energy demand with 100% clean energy at the lowest cost, a massive 68 percent of its generation mixwould come from wind. But for a share of renewables of that scale to be delivered efficiently, the system would need to be reinforced with a significant volume of flexible capacity, in this scenario13 percent battery energy storage, plus 8 percent synthetic fuels, such as hydrogen and hydrogen-based methane.
Cutting costs and emissions in line with the EU’s goal is linked with the urgent need to exponentially increase Europe’s share of renewables, placing flexible capacity at the heart of the business case.
