Carbon Tracker analysis warns soaring gas process could leave projects that produce hydrogen from fossil gas stranded
The fledgling green hydrogen industry has seen an investment surge of over $70bn in the wake of Russia's illegal invasion of Ukraine, as producers have looked to develop production facilities that do not rely on costly fossil gas as a feedstock.
That is the conclusion of a major new report from think tank Carbon Tracker, which warns that hydrogen production assets that rely on fossil gas could become stranded over the course of the next decade as green hydrogen plants become increasingly cost competitive.
Hydrogen is widely regarded as a critical fuel for the net zero transition, as it provides a means of decarbonising a raft of industrial processes. The gas can be produced either through the electrolysis of water using renewable power to create green hydrogen or through its extraction from methane, a process that produces carbon dioxide as a by product that can then be captured and stored resulting in so-called blue hydrogen.
Advocates of blue hydrogen have argued it could prove more cost-effective and scalable than green hydrogen, but the soaring cost of wholesale gas has drastically increased the cost of hydrogen produced from fossil gas. And at the same time plummeting renewables costs have continued to improve the economics of green hydrogen production.
Carbon Tracker's new report - titled Clean Hydrogen's Place in the Energy Transition - assessed hydrogen investment in 25 major economies and found that in the months since Russia's invasion of Ukraine $73bn of public and private funds have been committed to green hydrogen projects.
Germany, Morocco, and the US are set to mobilise the highest levels of investment in the near term, according to the report. However, it also predicts that in the long term it is countries in the Global South with significant renewable energy resources that are most likely to dominate the green hydrogen market with South Africa, Morocco, and Chile all expected to emerge as major producers.
In contrast, the report estimates that more than $100bn of fossil-based hydrogen assets, particularly those tied to gas, could become stranded before 2030 due to high gas prices, supply insecurities, and government and corporate commitments to reduce natural gas usage in line with net zero targets.
The report predicts Europe and Asia are set to be most exposed to the risk of stranding as new fossil-hydrogen assets boasting eight million tonnes of capacity are set to come on stream from this year.
"Though green hydrogen is not the silver bullet to the climate crisis, it offers part of the solution if used in a targeted way for specific industries and offers an attractive solution to bridging the thorny issue of energy intermittency anxiety in the power sector, alongside advanced battery technology and the use of smart grids," said Kofi Mbuk, senior cleantech analyst and author of the report. "Green hydrogen will play a crucial role in the energy transition but applications will need to focus on the agricultural sector (fertilizers) & heavy industry (steel, heavy transport, shipping, mining) until tech innovation for electrolysers improves and fresh water usage is cut."
However, the report also stresses that green hydrogen production at scale is still likely to face a number of challenges, including accessing fresh water reserves and the continuing need to drive further cost reductions and tackle inefficiencies in the production process.
The report estimates that building out a green hydrogen economy will require $3tr of investment through to 2050 to help deliver net zero targets, alongside potential additional investment in supporting infrastructure such as tankers, storage, pipelines, and desalination plants.
As such, Carbon Tracker recommends that governments quickly move to develop an effective policy environment including green hydrogen certificates to confirm supplies are produced using renewable power; the introduction of Contract for Difference (CFD) schemes to drive investment in renewable energy technologies; tax credit schemes to drive investment in hydrogen infrastructure; and the setting up of dedicated financial bodies to support the expansion of the sector.