Bullishness has yielded to a more sober view. Buyers and banks remain shy and would-be producers are wary about committing capital.
It’s springtime in the Netherlands. The tulips are blooming, and in Rotterdam’s humid drizzle the European hydrogen industry this week mustered at a cavernous exhibition centre for its annual networking and matchmaking jamboree.
Last year, 3500 people showed up to the World Hydrogen Summit, bursting with buzz and hype over hydrogen’s potential. A massive energy transition was under way, and the feeling was that the sun was about to shine at last on this long-neglected industrial molecule.
But 2022, it turned out, was just the warm-up. This year, 11,000 people came to Rotterdam. On a pre-summit boat tour of the 40-kilometre-long port, every second cluster of buildings seemed to have a proposal attached to it that would retool the site for the coming hydrogen boom.
Hydrogen and its derivatives, particularly ammonia and methanol, are seen as the great green hope for weaning the world, and energy-starved Europe in particular, off a fossil fuel addiction that is frying the planet.
But beneath the summit’s hope and hype lurked a lingering anxiety. Which of the many vaulting ambitions for hydrogen will actually bear fruit, and when? What will it all cost? Is hydrogen really the climate hero, or is it all just hot air?
“We do seem to be genuinely on the cusp of a pretty serious evolutionary step for the hydrogen industry,” says Fiona Simon, CEO of the Australian Hydrogen Council.
“We’re not the challenger trying to convince everyone we should have a place. But what’s come with that is the hard realities: we’re learning what being real means. Now we really need to clarify our priorities, stop trying to be everything to everyone.”
Some companies, and countries, will crack the code and cash in. Others will back the wrong idea, or – maybe even worse – get behind the right idea too soon, or too late.
At hundreds of booths, stalls and pavilions, and in thousands of conversations on the summit sidelines, everyone was either sizing up the competition, looking for collaborators, or simply trying to make sense of the hydrogen kaleidoscope.
In the past 12 months, the landscape has changed. US President Joe Biden has coughed up $US370 billion ($547 billion) for an Inflation Reduction Act heavily geared towards boosting the clean energy transition. The European Union has marshalled an equally generous but more scatter gun fusillade of policies and subsidies. The Middle East is ponying up cash.
Together, all this has let a thousand flowers bloom. Some companies are frantically making electrolysers to turn water into hydrogen. Some are using those to build hydrogen power generation/storage plants. Some are focused on how to store hydrogen, others on how to transport it – whether as ammonia, methanol, liquid or gas. Some want to use it to heat homes, others to make green steel or to fly planes or fuel trucks and buses.
There were ports, tech firms, energy companies and governments – with Australia’s Austrade-led meeting space again one of the summit’s largest and busiest.
But unlike last year’s excitement at seeing an industry start to blossom, this year brought a more sober sense that the best flowers need plenty of financial fertiliser, and the wilder shoots need weeding out.
Which ideas, which processes and which sectors will thrive and succeed right now? And which are just too ambitious, too risky, too technically tricky? For every promising pipeline, there is a perilous pipedream.
Realism and rationality are creeping in, observes Matt Hingerty, deputy CEO of Australian hydrogen R&D firm Star Scientific. “I haven’t heard anyone using the Swiss Army knife analogy for hydrogen at this year’s conference,” he says.
Some participants, but certainly not all, acknowledge that wherever electrification is cheap and efficient – home heating, and arguably in large parts of the passenger vehicle industry – hydrogen might have to wait, or stand aside.
But even for the basic use case – powering an industrial plant with hydrogen made from renewables-driven electrolysers – there is little to show for a year of bustle.
“The largest unit in operation in Europe is a 20 megawatt unit. If we’re looking at the [hydrogen] ambitions of Europe, then we’re talking about 200 gigawatts of electrolysis in operation by 2030,” says Marcel Galjee, CEO of Macquarie-backed hydrogen producer HyCC.
“So, that means 10,000 times the largest unit we have in operation today … Although this is a really old technology, building it to an affordable, reliable structure really will take some time and some lessons.”
Thyssenkrupp Nucera CEO Werner Ponikwar told the summit that hydrogen had yet to get the basics in place. “If hydrogen is to really play an important role in the energy transition … [it] needs to fulfil the basic requirements of the energy industry: accessibility, availability and affordability.”
The hydrogen kaleidoscope
The big problem is that hydrogen is not a commodity. You don’t just make it and sell it into a liquid market, like oil or gas or iron ore, to buyers who know what to do with it, and who all do essentially the same things with it.
The “offtakers”, or contracted buyers, are so diverse: they need the product in different ways, for different things, and their green standards or requirements vary widely. Suppliers need to negotiate with them individually, adapt to them, lock them in.
That’s not all. The way producers make hydrogen, and what exactly they make, depends crucially on geography and resources, which shape both supply and demand.
Some countries, like the US, have industries already using “grey”, or fossil fuel-based hydrogen, so the low-hanging fruit is just to turn that green. Others, like less industry-heavy Australia, might need to start with their truck fleets.
Some have abundant renewables, like the Nordics’ fount of hydro, which could turn them into green hydrogen superpowers. Others have the North Sea on their doorstop, where depleted oil fields offer a ready-made carbon storage reservoir, opening up opportunities for “blue” hydrogen made with natural gas and carbon capture.
Meanwhile, because so much of the infrastructure for hydrogen is next-to-non-existent, the industry needs to take an interest in the supply chain’s nuts and bolts, such as storage and transport, which will also shape what is made, where and how.
“The challenge is complexity,” Axel Wietfeld, CEO of Uniper Hydrogen, told the summit. “If you want a bankable project, and risk-free, then actually you should line everything up at the same time: the green electrons, the electrolysis itself, the customer, and also the entire infrastructure bit, the grid access, the transportation.”
“That’s really difficult, and we end up with the question: how can we de-risk a project? Would we be prepared to enter into emergent risk because everything is not set up at the same time? That’s one of the project challenges.”
Walk before you run
Risk is on everyone’s mind. Nobody likes to use the phrase “chicken and egg” any more, but there it is.
While buyers and banks remain shy, the would-be producers are wary about committing capital. But if they can’t make the business case, then they can’t coax the buyers and the banks away from familiar and cheaper energy options.
“Those who need hydrogen in the future hesitate to make these massive investments out of fear that the hydrogen will not be there when they need it,” EU climate commissioner Frans Timmermans told the summit.
“Those who want to produce hydrogen perhaps hesitate in investing because they fear they might not have a market when they produce it.”
The long-acknowledged key to bridging this gap is getting the cost down – ideally to $US2 a kilogram.
The classic way to cut costs is economies of scale. But the sheer complexity of the industry’s standing start means few are ready for that.
“It isn’t until we actually start building the commercial-scale projects that it’s possible to start the learnings that make it possible to scale up to the gigawatts,” Olivia Breese, a senior vice-president at Danish energy giant Orsted, told the summit.
“We all have to make those difficult decisions where everything is not in place, and we know we will make mistakes. But it is in making those mistakes that we learn how to scale up.”
She also said that demand needed to scale, not just supply. But this is easier said than done. “We’re spending a lot of time talking to offtakers … helping them as much as we can to understand the relatively complex value chain that they’re stepping into, in terms of pricing, timing, and also risks.
“But everybody [on the demand side] is looking at everybody else, saying, ‘ooh, can you go first?’ Breaking that cycle is where we need to look to regulation.”
Tapping the taxpayer
The summit conversations rarely drifted away from the need for governments to get hydrogen past the chicken-and-egg problem. The industry wants public policy and money to get through the fledgling stage, as happened with solar and wind.
The IRA, the EU money – including a new Hydrogen Bank – and Australia’s $2 billion Hydrogen Headstart fund all focus on the producers. But Bechtel global operations executive John Gunn said few governments were as active on the other side of the ledger.
“Very little has been done on the demand side – whether that is through an overall carbon price that incentivises the whole economy to transition, or whether in the nearer term it’s incentives that cause the demand side to want that lower-carbon solution,” he said.
South Australian Premier Peter Malinauskas dropped into Rotterdam to tell delegates that his state is tackling this in a different way: be the demand you want to see.
The SA government is using hydrogen – a state-funded 250 MW electrolyser, fuelling a 200 MW power plant – to solve a specific and pressing problem with renewables: at high noon on a sunny day, supply sometimes outstrips demand.
Initially, the hydrogen plant will be little more than a pretty expensive way of storing that excess power supply, and of serving as customer and catalyst for further renewable generation projects.
But Malinauskas reckons it also positions the state for whatever comes next, whether it be supplying a green steelworks or exporting hydrogen. He’s putting public money where the private sector fears to tread.
“One of the challenges that in a policy sense we grapple with is, at what point do you say, ‘we’re just doing this’, rather than constantly waiting or delaying in the hope of another revolution in technology?” he tells AFR Weekend.
“We’re seeking to achieve first-mover advantage. Cost is clearly a consideration, but I’m definitely putting a premium on time.”
The other government seeking a first-mover advantage is the US. Biden’s IRA tries to crack the chicken-and-egg problem with a “build it and they will come” philosophy.
The EU is putting the same amount of money on the table, but making it slightly more complicated to tap into. China and the Gulf states, which were under-represented in Rotterdam, will also be opening the coffers.
Hubba bubba
Somehow, though, the private sector will have to grasp the oars as well. The key seems to lie, as the Biden administration has understood, in creating hubs. In Europe, these will likely emerge naturally around ports like Rotterdam.
BP’s senior vice-president for hydrogen and CCS, Felipe Arbelaez, sketched out for the summiteers a potential set of stepping stones from hubs to the hydrogen future: local, regional, then global.
It would begin with industrial users, who are big and already often using grey hydrogen. They can cop the risk and offer some scale, and the hydrogen can be produced on-site or nearby, avoiding the need for costly and complex shipping.
“When these projects become successful, there will be a clamour to develop pipelines to other locations,” he said. “Piped hydrogen, as we all know, is much cheaper than shipping it, so we could see a situation [in the US] where it is piped interstate.
“That could happen using existing energy infrastructure, or by creating new pipeline systems. And in time, when the regional supplies are taking off, when the technology advances and hydrogen can be shipped more cost effectively, we will see a global traded hydrogen market.
“At that point in time, [it could] be easily traded internationally between Australia and Japan, for example, or from North Africa to Europe.”
That’s probably not the only pathway. But however the industry plans to run the hydrogen race, it isn’t even out of the starting blocks yet.
Industry leaders like Breese and Galjee say the sector has to walk before it can run – but the net zero deadlines of 2030 and 2050 call for a mass sprint.
The first lap will involve the hard-to-abate sectors where the easy option of electrification isn’t available. The public may not notice the quiet frenzy at mines, ports and industrial zones, and among heavy-vehicle fleets.
Governments have started to figure out how to help the industry strap the rocket boosters on. But red tape, uncertainty and tight budgets mean things aren’t firing up as fast as they might.
With all that on their minds, the hydrogen summit vibe was both optimistic but also cautious. Not everyone can see the finish line. Not everyone will reach it. And they will have to dig deep.
As Deloitte partner Eric Vennix told his fellow summiteers: “Even if we all believe the hype around hydrogen, well, we need a lot more of it.”
Source: afr
