Realising the hydrogen ambition

Prof. Juergen Peterseim and Dario Galvan,

PwC Germany, detail how to turn the hydrogen debate into tangible market growth.

To achieve the Paris Agreement’s goal of limiting global warming to 1.5°C, a significant global acceleration towards the decarbonisation of economic activities is clearly required. A net zero pathway can only be achieved by adopting a range of sector-specific and cross-sector technologies. In applying these technologies, energy efficiency is the overarching selection criterion in order to decarbonise each energy end use.

For some applications, the most efficient pathway to achieve net zero emissions is by direct electrification, as in the case of private and public transport. However, in hard-to-abate sectors such as the chemical, cement and steel industries, or niches such as heavy transportation vehicles, the use of low-carbon hydrogen will play a key role. It is estimated that 50% of the total energy mix for the energy transition will be provided by green hydrogen molecules. The main advantage of hydrogen is its versatility, as it can be used directly as feedstock, or transformed into green fuels, gases, or chemicals.

Hydrogen demand development

Hydrogen demand is expected to experience steady growth until 2030, and should then accelerate significantly as hydrogen transport infrastructure is made available and more ambitious climate change policies take hold, spurring greater hydrogen market development. The following three hydrogen demand trajectories can be distinguished, as illustrated in Figure 1: � A low ambition trajectory overcoming the 2.3°C global warming level. � A medium ambition trajectory resulting in global warming levels between 1.8 – 2.3°C. � A high ambition trajectory of under 1.8°C global warming, which would align with the Paris Agreement targets.

The estimated hydrogen demand figures for 2050 vary significantly, ranging from 150 to 600 million t. The wide range of hydrogen demand estimates results from the differing underlying assumptions regarding the technologies used, e.g. the continued use of natural gas, efficiency improvements, direct electrification, or carbon capture and storage (CCS). The less ambitious scenarios only see a small and almost linear growth in hydrogen demand, with the continued use of natural gas, and estimate that it will vary between 150 – 200 million t in 2050. The scenarios with medium climate ambitions identify a range between 160 – 490 million t by 2050; scenarios for higher ambition climate goals estimate demand to range between 200 – 600 million t by 2050. The latter takes into

account higher hydrogen demand in the hard-to-abate sectors, such as steel or chemicals, substituting current grey hydrogen and new demand generated by new applications and/or products.

It is necessary to emphasise that only the ambitious hydrogen demand scenario will enable the achievement of the Paris Agreement goals. As such, efforts should be directed towards immediately providing the suitable conditions for the acceleration of the hydrogen market ramp-up. The development of a ‘hydrogen economy’ is still in its early stages. However, the number of countries publishing hydrogen strategies has increased considerably, demonstrating broadening global interest and support.

To date, 26 countries and the EU have published national hydrogen strategies, with 13 published in 2021 alone. A further 22 countries are currently drafting hydrogen strategies, a number of which should be published in 2022. This reflects a clear acceleration of government interest that is potentially backed by COP26 agreements, which act as a catalyst (see Figure 2).

Hydrogen trade development

The hydrogen market will pass through various development phases, characterised by stakeholder involvement, transportation infrastructure development, spatial expansion levels, and its international trade (see Figure 3). During the initial ramp-up period, there will be ‘hydrogen islands’. Initially, hydrogen will be produced in local projects close to the demand site in order to facilitate technology testing and avoid extra transport costs. These projects will be the result of joint development ventures and industrial parks in which stakeholders combine their hydrogen-related business activities. These islands will have the capacity to meet annual demand of up to 110 TWh if production capacity is built up by 5 GW, targeted in the national strategy by 2030. An example of a hydrogen island is the project ‘HYBRIT’, in which the Swedish steel producer Figure 1. Range of hydrogen demand assessment by 2050 (source: World Energy Council). SSAB, mining company LKAB, and energy provider Vattenfall will cooperate to bring into operation a fossil-free steelmaking plant located in Lulea, Sweden. The pilot plant will produce sponge iron, a crucial ingredient for the steel-making process, while carrying out tests between 2020 – 2024 to determine which production processes are the most efficient. The project aims to introduce the first fossil-free steel to the market by 2026. In the medium-term, a second development trade phase will continue, characterised by hydrogen production in hubs progressing in regional hydrogen markets, accelerating growth in volumes. The hydrogen island will converge towards an integrated EU-wide transportation network. Figure 2. Overview of countries’ activities towards developing a hydrogen strategy Hydrogen hubs, or clusters of (source: PwC). large-scale demand, are local areas where various existing

and potential hydrogen users from differing sectors are co-located. The co-location within hubs can render developing infrastructure (such as pipelines, storage and refuelling stations) more cost-effective by promoting economies of scale and synergies from the sector to help develop the value chain.

These strategies consider different approaches to identifying, locating and funding potential clusters. Key variables affecting the potential hub site choice include access to demand; land availability; import or production potential via port, road, and rail infrastructure; access to existing gas transmission network; and favourable local economic, social and environmental factors (such as suitable skilled workforce). In several countries, the industry is leading efforts to form clusters for cross-sector collaboration to develop the value chain and enable scaling up. Beyond industry, academic and research institutes are also seeking to co-locate at potential hub locations. Two concrete pilot projects reflecting how hubs may operate in a regional dimension have already started their construction phase, and will focus on the refinery and fertilizer sector.

The Refhyne project operates Europe’s largest proton exchange membrane (PEM) electrolyser (10 MW) at the Shell Rhineland Refinery in Wesseling, Germany, producing approximately 1300 tpy of hydrogen. The plant is operated by the oil company, Shell. The project aims to validate the business model of decarbonising refinery processes by using low-carbon electrolytic hydrogen as a replacement for the hydrogen supplied by steam methane reforming (SMR). In addition to this, the plant will explore applications in other sectors including industry, power generation, heating for buildings, and transport.

A second example is a project established by the fertilizer producer Yara Pilbara, and the energy provider ENGIE. The project is located in Western Australia, and by 2023 it will start producing green ammonia through the Haber-Bosch

conversion process, using renewable hydrogen as feedstock. The targeted market includes customers from power generation, shipping, fertilizer, and mining explosives. Renewable electricity will be provided from photovoltaic (PV) panels backed up with a battery storage system, enabling the plant to operate without being connected to the main electrical grid. In the first phase, the project will produce up to 625 t of renewable hydrogen by using a 10 MW electrolyser to produce 3700 tpy of renewable ammonia. In case efforts to achieve climate goals set promising conditions towards a more ambitious target, the hydrogen trade development may continue with the establishment of a liquid market, based on a physical logistic network for moving higher volumes of hydrogen. The scope of this market will depend on the structure of the transportation network and the regulatory framework. In the long-term, from 2050 onwards, Figure 3. Development of the low-carbon hydrogen market (source: PwC). the potential for the development of an intercontinental hydrogen market will depend on the economics of hydrogen shipping. This international trade will be driven by the significant difference in hydrogen production cost in various territories around the globe. However, transportation economics need to be added into the equation, with significant cost differences between pipeline and seaborne transport.

Conclusion

With the urgency to mitigate climate change, actions to support the energy transition must be taken immediately. As discussed in this article, hard-to-decarbonise sectors will require the use of low-carbon hydrogen in industrial processes that cannot be directly electrified. In addition to this, its global market development is necessary to guarantee cost-competitive hydrogen volumes to supply an ambitious demand scenario compatible with the 1.8°C of global warming expressed in the Paris Agreement. However, the development of a hydrogen economy will require a timeframe in which each stage of its market development will take approximately one decade. This lengthy timeframe is due to the time and capital-intensive establishment of hydrogen projects, as well as the necessity for the development of a suitable transport infrastructure that will go hand-in-hand with the increased demand for hydrogen. Current hydrogen projects that are under construction and in operation are almost exclusively at pre-commercial phase and have limited electrolyser capacities. Transport infrastructure will enable local hydrogen projects to grow into hubs, expanding to regional and later global markets. Nevertheless, putting in place the infrastructure for large-scale hydrogen use can take up to a decade to plan, permit and build. Therefore, the 2020s will be decisive in creating a suitable framework, in which hydrogen niches will emerge for its long-term integration into our energy system, serving for the decarbonisation of greenhouse gas intensive economic sectors.