The Hydrogen Rainbow

Can the Hydrogen Rainbow help deliver a sustainable Future?

Introduction:

Hydrogen is often referred to as the fuel of the future, holding the promise of sustainable energy production and a cleaner environment. In fact it’s a “Now!” option, an existing industry with loads of new activity underway.

As the world seeks to transition towards a zero-emission future, hydrogen is set to play a crucial role as a fuel source, energy carrier and chemical reducing agent. According to estimates from the International Energy Authority and others, hydrogen’s share of energy production could be as much as 10-15% of the global mix in 2050. Notably, hydrogen is seen as a solution in those heavier industry parts of our economy that are more difficult to abate, where its versatility is commanding string interest.

Hydrogen comes in what seems to be a growing array of colours, each indicating its production method and environmental impact and carrying its own risks, primary and secondary costs. Here, we explore the different colours of the hydrogen rainbow, their economics in both $ and carbon terms and potential applications as a renewable energy source in the transition to a more sustainable future.

I. The Colours of Hydrogen

Historically, hydrogen has been categorised into three main colors: grey, blue, and green, each associated with different methods of production and their environmental impact. Categorisation, as we’ll see, is important.

Grey Hydrogen:

Grey hydrogen is the most common form of hydrogen produced today. It is derived from fossil fuels, primarily natural gas, through a process called steam methane reforming (SMR). This process releases carbon dioxide (CO2) as a byproduct, making grey hydrogen a significant contributor to greenhouse gas emissions. While it is readily available, its environmental cost is high. Typical cost of production is relatively low at c.$1/kg of Hydrogen (kgH).

Blue Hydrogen:

Blue hydrogen seeks to address the environmental concerns associated with grey hydrogen. It is also produced from natural gas but additionally employs carbon capture and storage (CCS) technology to capture and store the CO2 emissions, reducing its environmental impact. Blue hydrogen is seen as a transitional step towards a greener hydrogen economy. Largely reflecting the additional efforts here, blue hydrogen production costs come in at around $2-3/kgH.

Turquoise Hydrogen:

Turquoise hydrogen is so called because the method of synthesizing it is regarded as sitting somewhere between green and blue hydrogen production, using a process called methane pyrolysis, which directly splits methane into hydrogen and solid carbon. Also called ‘carbon black’, this latter byproduct has a variety of industrial applications, including in the production of car tires, coatings, plastics and batteries, and is considered a critical raw material. The main component again is natural gas.

Moving away from gas as a feedstock (and thus a core pricing input) and further towards the more carbon-emissions-friendly end of the spectrum we have more colours of hydrogen, in broad order of historic activity.

Green Hydrogen:

Green hydrogen is the most proven and one of the cleanest and potentially most sustainable forms of hydrogen. Produced through electrolysis, using the process many will be familiar with from school chemistry lessons to split water into hydrogen and oxygen, green hydrogen (by definition) uses sustainable electricity generated from strictly renewable sources such as solar, wind or hydropower. As with other forms of hydrogen, it emits little-to-no greenhouse gases when burned for energy.

However, its economic attractiveness largely reflects wholesale electricity pricing, as this is its key raw material. Only at stable low electricity input prices and with high utilisation rates seldom seen is green hydrogen unlikely to be free of the need for government subsidies or other support to compete economically with other forms of energy or hydrogen.

Hence, early government support is key to bringing down some longer-term unit costs, as it was and did in scaling up solar and wind production. A key benefit of green hydrogen is that it can be used to store and build capacity and capture value for operators at times when, eg due to a lack of grid flexibility or storage capacity, the energy and value produced by solar and wind farms would otherwise be unused and wasted. So at the very least, green hydrogen can add resilience and strong value to existing renewable energy operations (like other value capture solutions such as pumped hydro…or even bitcoin).

Categorisation and Related Government Support is Critical Near Term

Policy associated with all forms of hydrogen production and its official colour coding (which typically drives government cash support) is amongst the most important aspects of hydrogen economics currently, beyond the fundamentals of production cost pricing.

Reflecting higher losses of energy from the original renewable energy source through a multi-stage production process, green hydrogen production currently costs around $5-8/kgH without subsidy, though this is forecast to decline, perhaps by $2-3/kgH in the next decade or so as technologies develop. Policies vary elsewhere, for example, on blue hydrogen as between UK and Europe.

Most recently the US revealed 7 regional “Hydrogen Hubs” to receive $7bn of government support towards clean H2 developments which the White House says will “catalyze more than $40bn in private capital support”. These hubs are set to support blue, green and Pink Hydrogen (created with the electrolysis of water too, but where the source of the electricity comes from nuclear power).

For example the California Hydrogen Hub is set to receive up to $1.2bn for a project led by the state of California, which will produce green hydrogen from renewables and biomass primarily to decarbonise public transport, heavy-duty trucking and port services. Over 200 partners are involved including Amazon, Bosch, Chevron, GE, General Motors, Hyundai, Microsoft, Michelin, industrial gases giants Air Liquide, Air Products and Linde, as well as hydrogen truck makers Nikola Motors and Hyzon, electrolyser makers Bloom Energy, Plug Power, Thyssenkrupp Nucera, John Cockerill and Hysata, and fuel-cell airplane builders ZeroAvia and Universal Hydrogen. (Source:HydrogenInsight).

Absent some of the cost and support disadvantages of green hydrogen some other emerging hydrogen colours and solutions are gathering interest from investors and policymakers.

Orange Hydrogen

Orange Hydrogen is produced from bioenergy – such as biomass, biofuel, biogas or biomethane – which usually comes from waste and residual materials. Germany will use orange (plus blue and turquoise) hydrogen “to a limited extent” while the green hydrogen market ramps up. We see some attractive low operational costs here and all round net negative carbon emissions processes too, for example if waste used as a feedstock would otherwise go to landfill.
White Hydrogen, which geologists refer to as ‘natural’, ‘native’ or ‘geological’ hydrogen may yet be the cleanest, most cost-effective, lowest-carbon emitting form of hydrogen available today. Offering near zero carbon emissions in its continual natural production within the earth’s crust, alongside relatively low production costs (around $1/kgH), it has a high energy-to-mass ratio and strengthening policy support globally (now in more than 30 countries). Flowing to the surface via naturally-occurring subsurface geothermal processes in the earth’s crust, this form of hydrogen just needs to be collected. Leading companies pushing hardest into white hydrogen include Engie, H2Au, Hethos, Hydroma and Maersk.

II. Applications in the Zero Transition

Hydrogen’s various colours offer a range of applications in the transition to renewable energy and the broader decarbonization of key industry sectors.

Transportation:

Hydrogen can be used as a fuel for transportation, particularly in fuel cell vehicles. Renewable hydrogen can power these vehicles, emitting only water vapor as a byproduct, making it an attractive option for reducing emissions in the transportation sector.

Industry:

Industries that require high-temperature processes, such as steel and cement production, can use hydrogen as a clean energy source. Renewable hydrogen can replace traditional fossil fuels, significantly reducing carbon emissions in these sectors. For example in the steel industry, H2 Green Steel are building a brand spanking new large-scale green steel plant in Boden, Sweden. More progressive incumbents such as GFG Alliance and others are also converting systematically and rapidly. Others such as such as Thyssen Krupp are doing both.

Power Generation and Energy Storage:

Hydrogen can be used in power plants to produce electricity. When green hydrogen is used in conjunction with fuel cells or combustion, it can provide a flexible and low-emission way to generate power. And as mentioned, it can be stored and used as an energy carrier during times of excess renewable energy production.

Heating and Cooling:

Hydrogen can be used in heating and cooling systems. It can replace natural gas in furnaces, boilers, and air conditioning units, contributing to lower emissions in the building sector, although many cost-competitive alternatives exist in this sector, with safer, more proven histories. We thus remain far from convinced that hydrogen will play a key role in decarbonizing residential heating.

III. Challenges and Considerations

While hydrogen holds great promise in the renewable energy transition, challenges and considerations include those mentioned above and the following:

Infrastructure:

Unsurprisingly, building a broad hydrogen infrastructure, including production, distribution, and storage facilities, is a substantial undertaking. Investment and planning are required to make it accessible and practical. Local, smaller ventures, especially those that are “community-driven” and projects where hydrogen use is geographically close to production are more likely to get off the ground swiftly. A good example is the Orkneys’ hydrogen production plan installed onshore in Eday in 2016.

Safety:

Hydrogen is flammable and highly explosive! Safety measures are critical in its production, storage, and transportation.

Location:

Hydrogen suffers serious disadvantages in transportation, usually needing high pressure, low temperature or a mix of both to liquify what would otherwise be huge volumes of the stuff. Distribution infrastructure, including pipelines and systems, need protection as hydrogen embrittles most metals over time on contact.

Conclusion:

Hydrogen, with its different colors, offers a spectrum of possibilities and opportunities in the transition to renewable energy. Each has its place in our efforts to reduce carbon emissions. Government policy, alongside economic and emissions fundamentals remain key in the short-medium term and will go a long way to determining winners and losers, as well as our ultimate mix along the path to a sustainable and clean energy future.

The challenges associated with hydrogen production and infrastructure should not deter us, but rather inspire us to invest in innovation and collaboration, making hydrogen a central player in the zero-emission transition.


Disclaimer
Renewity advises renewable energy businesses operating in and investors committing capital to the renewable Hydrogen sector and other parts of the renewable energy spectrum, including potentially some businesses mentioned in this article.

This article/document is provided for assistance only and is not intended to be, and must not alone be taken as, the basis for a decision to enter any investments, investment services or transaction which may be described herein. The information contained in this document does not constitute an offer or solicitation to buy or sell any security or interest in or enter any agreement with any fund, manager, company, service provider, product. This document is being provided to you for information only and should not be considered as investment advice or containing sufficient information for you to make an investment decision, for which you shall rely on your own judgement, review, and analysis in your evaluation. Third party information contained in this document has been compiled from sources believed to be reliable, but no liability is accepted if this is not the case. Renewity has not necessarily undertaken full verification of the facts or opinions contained in this document and no warranty is given as to the accuracy, completeness, achievability or reasonableness of any information, projections, views, statements (forward-looking or otherwise), returns or forecasts, which are illustrative only. All statements including those of opinion and/or belief contained in this document and all views expressed and all projections, forecasts, targeted returns, or forward-looking statements (“Projections”) relating to expectations regarding future events or possible future performance represent Renewity’s own assessment and interpretation of information available to it as at the date of this document and are subject to change. No representation is made, or any assurance, undertaking or indemnity given that such statements, views, projections, or forecasts are correct or that they can be achieved. In considering any Projections contained herein, you should bear in mind that such Projections (and, in particular, any projected or targeted returns) are not indicative of future results, and there can be no assurance that an investment will achieve comparable results or that projected returns will be met. The value of investments may fall as well as rise and past performance should not be viewed as a guide to future performance. An investor’s capital may be at risk and any investment may not be readily realisable. This document has not been approved by any financial or securities regulatory authority of any country or jurisdiction. This document does not constitute an offer or solicitation in any country or other jurisdiction to any person to which it is unlawful to make such offer or solicitation in such country or jurisdiction. The distribution of this document may be restricted in certain jurisdictions. The information contained in this document is for general guidance only. It is your responsibility to inform yourself of, and to observe, all applicable laws and regulations of any relevant jurisdiction.

 

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