Page 129 - CW E-Magazine (5-12-2023)

Point of View

As competitive centres of clean hydrogen production

emerge international trade will scale up

The transformation of energy from its overwhelming and unsustainable dependence on fossil fuels is critical to combatting climate change.
This requires a multi-pronged approach requiring a far larger share of renewable energy (RE), of which solar and wind are the most important.
RE is also seen as key to widespread electrification with applications ranging from cars, to heating & cooling buildings. There are, however,
several industrial and mobility sectors – cement, steel, chemicals, long-haul shipping and aviation, to name some – that cannot decarbonise
easily, and for these other options will be needed. Hydrogen is one.

Hydrogen is widely used in the process industries today. In crude oil refining, it is used to upgrade fuel quality to meet stricter standards of
fuel use efficiency. In the fertiliser industry, it is one input to make ammonia (the other is carbon monoxide/carbon dioxide), and in the chemical
industry hydrogen is needed to make methanol, which serves as a raw material for making other chemicals and, is increasingly seen as an
energy carrier.

The clean hydrogen manufacturing industry is rapidly evolving in technology, competitiveness (with that produced from fossil fuels), government
policy and investment interest across the world. But the pace of growth is still far short of that needed to meet ‘net zero’ targets by 2030.

According to a new report from the Hydrogen Council, an industry lobby group, in collaboration with McKinsey, a consultancy, under a
scenario wherein the pace of the energy transition is accelerated, but is still below that required to meet the Paris goal (of limiting global warming
below 1.5°C), demand for clean hydrogen (both low-carbon and renewable) could reach over 40-mtpa by 2030.

The study sees substantial differences in the economics of clean hydrogen manufacture between regions, stemming in substantial part from
generous production incentives. As a consequence, a sizeable portion, of hydrogen demand – about 20-mtpa by 2030 – will be met by hydrogen
transported long distances, by pipeline, or as ammonia, methanol, synthetic kerosene (SK), and shipped even across oceans. By 2050, the study
estimates the amount transported could rise to as much as 200-mtpa.

How the hydrogen landscape has changed since 2022
One of the significant findings of the study is that the hydrogen landscape has changed substantially since 2022. For one, decarbonisation
expectations globally have moderated from the levels of a year ago. These are a reflection of technological uncertainties, and lack of coherent
and stable regulations, including a global price on carbon.

Another, seemingly surprisingly, finding is that the levelized cost of hydrogen (LCOH) for renewable hydrogen is 30-65% higher in 2023, from
the costs a year ago. This is attributed to higher capex, financing and renewables cost, as well as for engineering, procurement and construction
(EPC). A substantial portion of the cost increase stems from the higher Balance of Plant (BoP) costs. But the good news is that despite the
higher cost, renewable hydrogen maintains its market share vis-à-vis low-carbon hydrogen (produced from natural gas, with the CO produced
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sequestered). By 2050, out of 375-mt of clean hydrogen demand, 265-mtpa is expected to be from renewables and 110-mt low carbon – an
unchanged 70:30 split.

Though the capex costs of low-carbon hydrogen projects have risen, its impact on overall costs are not very significant, as much of it is
opex driven (natural gas pricing in the main), and not capex.

In select geographies, generous production linked incentives could reduce clean hydrogen prices, potentially boosting production and exports.
In the US, for instance, there is a Production Tax Credit (PTC) of $3 per kg of renewable hydrogen for the first ten years of a project’s duration,
over and above credits available for renewable power generation. For low-carbon hydrogen, producers can select a PTC of up to $3 per kg over
the first ten years or $85 per tonne CO sequestered for the first 12 years.
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Competitiveness of hydrogen production
The economics of clean hydrogen production is determined by three main factors: LCOH; the pace of CCS deployment; and various elements
that influence a region’s investment attractiveness (industrial capability, workforce availability, etc.).

In the case of renewable hydrogen, LCOH is determined by RE costs, the size of the RE potential and electrolyser capacity utilisation; while
for low-carbon hydrogen, it is determined by the price and availability of methane, the costs of CCS, and emissions pricing (if any). This year’s
study finds that higher electrolyser costs have improved the relative comparative economics of low-carbon hydrogen to the renewable avatar.

Chemical Weekly December 5, 2023 129

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