The success of the energy transition
hinges on creating a sustainable, reliable and affordable energy system for
all. Solving this trilemma will be a difficult challenge. Accelerating the build-out of renewable
generating capacity is critical to reducing the world’s reliance on fossil
fuels and mitigating the effects of climate change. However, the transition cannot—and
will not—happen overnight.
Roughly 30% of the world’s greenhouse gas (GHG)
emissions originate from hard-to-abate sectors (e.g., steel, cement,
petrochemicals, aviation, marine transportation) that are not easily
electrified. H2 and H2-based liquids and eFuels can play
a crucial role in decarbonizing these industries (and others) by serving as a versatile
and dispatchable chemical carrier of clean electricity. However, the world presently lacks the
requisite infrastructure for widespread hydrogen (H2) adoption.
Given the urgent need to reduce GHG emissions
and with rising global energy demand, decisive action must be taken now to lay
the foundation for a scalable and reliable clean H2 economy. In the
author’s view, three things must occur to make this possible:
Streamlining
the permitting and approval process to accelerate project timelines. While announcements for new H2-related
projects continue to increase, only around 5% have reached a final investment
decision (FID).1 This is troubling, as many forecasts show that we
are already behind the level of H2 production needed to track with
net-zero objectives by 2030.
Much of this is due to uncertainty about
economic attractiveness to serve future demand. However, complex regulatory frameworks
and the slow pace of approvals/permits are also hindering progress.
To change the trajectory, governments
and regulatory bodies must collaborate with the private sector to create an
enabling environment that encourages investments and stimulates innovation. Faster
permitting of commercial-scale electrolyzer plants and dedicated renewable
generating capacity are needed. Expedited approval of carbon capture,
utilization and storage (CCUS) projects is also critical to decarbonizing existing
H2 production capacity, of which more than 95% is
still gray.
By making a concerted effort to reduce
complexity, policymakers and regulators can accelerate development cycles and
instill confidence in developers, technology providers and offtakers in the
long-term prospects for the industry.
Specific
CAPEX/OPEX funding for H2 production. Establishing the H2 economy will
require hundreds of billions of dollars in investments from the public and
private sectors over the coming decades. In its Net-Zero Emissions by 2050 Scenario (NZE), the International
Energy Agency (IEA) estimates that around 70% of clean energy investment over
the next decade will be from private developers, consumers and financiers.2
To attract private equity and debt
financing, governments must support H2 production CAPEX and OPEX through
up-front funding, tax incentives, etc. Progress has been made in recent years
on this front in both Europe and the U.S.
The passing of the Inflation Reduction
Act (IRA) is a significant development that transitions the U.S. from a system
that favors specific clean-energy technologies to one that prioritizes outcomes
(i.e., emissions reductions). The IRA’s tiered tax credit structure, which
provides up to $3/kg in incentives for zero-carbon H2, will undoubtedly
spur investments in electrolyzer plants, H2 infrastructures and
potentially transform the U.S. into a global hub for green H2.
However, governments must continue to
explore how they can provide support to bridge the cost gap between gray and
green H2. The disconnect between the number of announced H2 projects
and those that have reached financial close shows that current incentive frameworks
in many areas of the world must be revised. Today, some
1,000 new H2 projects have been announced globally, requiring a total
investment of $320 B. However, to date, would-be developers have only committed
$29 B.3
Policies that incentivize H2 use
in hard-to-abate sectors like cement, chemicals and steel must be developed
globally. A vital component of a bankable project structure lies in a long-term
offtake agreement that provides a steady revenue stream and an at-market risk
allocation between the supplier and the end user. These agreements are
necessary for projects to move past the pilot phase.
Improve
the security of supply chains. If the pandemic has taught us
anything, it is just how disruptive supply shocks and the repercussions they
create globally can be.
The coming build-out in
renewable capacity, including wind and solar energy and electrolyzer plants,
will pressure existing supply chains. In the IEA’s NZE by 2050 Scenario, installed
electrolysis capacity reaches more than 550 GW by 2030.4 For
context, global electrolyzer capacity stood at around 600 MW in 2021.
Relevant electrolyzer
technologies use precious metals, such as iridium and platinum, and wind turbines require several rare
earth metals. With demand for these raw
materials expected to surge, steps must be taken to harden supply chains and
increase resiliency. Diversification will be critical, as many of these
elements are mined in only a few countries, some of which are difficult to
access due to geopolitical factors.
The responsibility of
addressing supply falls on the shoulders of both public policymakers and
private industry. Governments can be proactive by negotiating mutually
beneficial trade agreements with their counterparties. On the private side,
organizations must collaborate closely with their suppliers and vendors to
ensure they also address vulnerabilities and mitigate geopolitical risks.
Building on existing
momentum. While there are
still hurdles to overcome to create a reliable and scalable clean H2
economy, momentum is building. Today, nine countries representing roughly 30%
of global energy sector emissions have announced national H2 strategies.1
This is an
encouraging trend; however, it is essential to recognize that the industry is
still nascent. Strong support and financing are needed
to spur growth, reduce costs and make projects bankable.
Collaboration
and strong partnerships are essential in achieving economies of scale and opening
new decarbonization pathways for H2, particularly in hard-to-abate
sectors that cannot yet be electrified.
Technology
providers, developers and operators must come together to create attractive
project structures for debt and equity financiers and build the market for
long-term offtake. This is something the author’s company firmly believes in
and has put into practice in several commercial-scale green H2 projects
across the globe. HP
LITERATURE
CITED
ANNE-LAURE DE CHAMMARD is a Group Executive Vice President and a member of the Executive Board of Siemens Energy. She heads Siemens Energy’s Transformation of Industry global business and is also responsible transversally for the Asia-Pacific and China regions. A member of the French ‘Corps des Ponts’, de Chammard earned MS degrees of Science and Engineering from École Polytechnique and École des Ponts ParisTech. She also holds an MS degree in Public Policy from Harvard University.