In the first part of my deep dive into the economics of hydrogen, published last week, I looked at the supply side and distribution – in particular the EU’s $550 billion Hydrogen Strategy, which sits at the heart of its Green Deal and Covid recovery plan. In broad summary, I concluded that ‘green’ hydrogen (i.e. hydrogen produced via electrolysis using renewable energy) will be cost-competitive with ‘blue’ hydrogen (i.e. zero-carbon hydrogen produced via fossil fuels with carbon capture) in around a decade and competitive with ‘gray’ hydrogen (i.e. hydrogen produced from fossil fuels without carbon capture) at around $1/kg by 2050. In this part two, I’m going to look at the demand side. What if the world throws a hydrogen party and no one shows up? As a chemical feedstock, of course, hydrogen is irreplaceable. However, as an energy storage medium, it has only a 50% round-trip efficiency – far worse than batteries. As a source of work, fuel cells, turbines and engines are only 60% efficient – far worse than electric motors – and far more complex. As a source of heat, hydrogen costs four times as much as natural gas. As a way of transporting energy, hydrogen pipelines cost three times as much as power lines, and ships and trucks are even worse. What this means is that hydrogen’s role in the final energy mix of a future net-zero emissions world will be to do things that cannot be done more simply, cheaply and efficiently by the direct use of clean electricity and batteries. To paraphrase the famous Heineken slogan of the 1970s and 1980s, hydrogen decarbonizes parts of the energy system electricity cannot reach. That does not mean that hydrogen’s future role will be marginal, however, far from it. First of all, that little phrase “as a chemical feedstock” will be doing an awful lot of work. Secondly, the corollary of hydrogen’s limited use to meet final energy demand is that we are going to be enormously dependent on electricity. An electricity system built on a foundation of ‘base-cost’ wind and solar power may be cheap, but it is going to need two things that hydrogen is uniquely positioned to supply: unlimited flexible capacity for reliable backup, and strategic energy storage for resilience to shocks.
BNEF 16th Oct 2020 read more »