In December 2020, six companies joined the United Nations’ Green Hydrogen Catapult coalition with a pledge to build 25 gigawatts of green-hydrogen production capacity by 2026. It was by far the largest target for a technology seen as a vital component of decarbonizing heavy industry and transport.
On Thursday, the coalition’s six original members and three new ones nearly doubled that target to 45 GW of electrolyzers being financed by 2026 and commissioned by 2027.
Thursday’s announcement at the COP26 climate conference in Glasgow represents a vote of confidence in a near-term path to cost-effective production of hydrogen using clean electricity.
Green-hydrogen production costs today are about $5 to $6 per kilogram, compared to $1 to $2 for “gray hydrogen” produced with natural gas. Industry analysts say that if its price drops to about $2 per kilogram, green hydrogen can replace dirtier fuels in a range of hard-to-decarbonize industries such as steel and cement manufacturing, production of chemicals, shipping and aviation. Green-hydrogen advocates and analysts had previously set a 2030 target for hitting that tipping-point price of $2 per kilogram.
But with this latest initiative, the deadline is being set sooner. The Green Hydrogen Catapult’s new target is “challenging some of the roadmaps that the industry has laid out,” said Thomas Koch Blank, senior principal with the Breakthrough Technologies team at RMI, the nonprofit research organization hosting the coalition. (Canary Media is an independent affiliate of RMI.)
For example, the target exceeds the European Union’s goal, set last year, of developing 6 GW of green hydrogen electrolyzer capacity by 2024 and 40 GW by 2030. “We can lean in and reach that much sooner,” Koch Blank said.
Scaling up the cost-effective production of electrolyzers, the devices that use electricity to convert water to hydrogen and oxygen, is the key first step in green hydrogen’s cost-reduction pathway. “We need a minimum amount of capacity installed to bring the price down, and even the less aggressive [forecasts] say the scale we need is about 50 gigawatts,” Koch Blank said.
The coalition’s new 45 GW target will add to the roughly 25 GW of electrolyzer capacity already in development around the globe, according to recent industry estimates. As demand grows, that should allow electrolyzer manufacturers to invest more heavily in production and achieve economies of scale that will help drive down costs more quickly, to about $200 per kilowatt from about $700 per kilowatt today, according to a new RMI report.
Beyond the significant cost of electrolyzers, the next biggest cost for green hydrogen is the renewable energy needed to power the process, Koch Blank said — and fortunately solar and wind power costs have fallen dramatically in the past decade. Countries pushing to slash carbon emissions from their power grids are expected to dramatically expand their reliance on renewables, and that’s expected to continue to drive down prices, as well as lead to significant oversupply that could be cost-effectively put to use making green hydrogen.
The new Green Hydrogen Catapult target is just the beginning. Koch Blank emphasized that “45 gigawatts is far from what we need.” About 850 GW of electrolyzer capacity will be necessary by 2030 to follow the International Energy Agency’s aggressive pathway to achieve net-zero carbon emissions by 2050.
Still, the newly announced goal represents an enormous expansion from the roughly 300 megawatts of existing global electrolyzer capacity the IEA tallied in spring 2021 and the forecast of 1.8 GW by 2022 that BloombergNEF released in August.
Why companies are putting their money behind green hydrogen
Members of the Catapult coalition have commitments on both the supply and demand sides of the green hydrogen equation.
Three renewable energy developers were among the coalition’s founding members: Saudi Arabia’s ACWA Power, which is working on a $5 billion green-hydrogen-based ammonia production site in Saudi Arabia; Australia’s CWP Renewables, which is part of a consortium planning a similar $52 billion project in Western Australia; and Spanish power company Iberdrola, which has positioned itself as a key player in Spain’s green hydrogen goals, with multiple projects including a plan worth 1.8 billion euros ($2.1 billion) in conjunction with fertilizer and industrial chemicals company Fertiberia.
Two wind turbine manufacturers are also among Catapult’s founders: China’s Envision and Denmark’s Ørsted, both of which are involved in large-scale clean energy projects to produce power to operate electrolyzers. The remaining two founding members, Italian gas network Snam and Norwegian chemical company Yara International, want to use zero-carbon hydrogen to augment existing fossil-fuel feedstocks.
The coalition’s three new members represent industries with enormous demand for green hydrogen. Australia’s Fortescue Future Industries, which has multibillion-dollar green hydrogen and electrolyzer plans around the world, is a subsidiary of iron ore producer Fortescue Metals, which is seeking to decarbonize its metals production. The Sweden-based H2 Green Steel consortium is planning a zero-carbon steel plant backed by 500 MW of electrolyzers. And the Mærsk Mc-Kinney Møller Center for Zero Carbon Shipping, named after the late CEO of Danish shipping giant Maersk, is investing in large-scale green hydrogen production to make zero-carbon fuel for cargo vessels.
Steel production is responsible for 7 to 8 percent of global carbon emissions, while shipping is responsible for 2 to 3 percent. Both are among the most challenging industries to decarbonize, and green hydrogen at scale could make a huge difference.
Projections from the Mission Possible Partnership industry consortium indicate that global steel producers will need investments of about $6 billion per year to reach net-zero carbon by 2050, and shipping will require a $2 trillion investment to meet a target of supplying 5 percent of its fuel needs with zero-carbon sources by 2030.
That’s why the consortium is asking government and business leaders at COP26 to boost incentives for green hydrogen production, as well as to invest in the underlying pipeline infrastructure to move the hydrogen from production sites to the locations where it’s needed.
Matching production and consumption at gigawatt scale
One key challenge in scaling up green hydrogen will be aligning the investments in production to match the investments needed to put the hydrogen to use in its target industries. But Koch Blank said the Catapult coalition members are, at least for now, “not primarily concerned” with who will buy the green hydrogen — a fact he attributed to the dramatic increase in demand from governments and companies looking to it as a decarbonization tool.
In the longer term, however, green-hydrogen production will need to take certain key factors into account, he said. One is the tradeoff between taking advantage of wind and solar power being generated in excess of grid demand — the lowest-cost energy available — and the inefficiencies involved in running electrolyzers less frequently on a schedule designed to take advantage of the cheapest power.
Storage and transport are also important factors. Cost-effectively storing hydrogen in large volumes requires access to massive underground caverns or aquifers — and moving it long distances adds significantly to the expense.
“The big drivers of demand here, in terms of scale, are very likely to be heavy industry,” Koch Blank said. That’s why so many of today’s green hydrogen projects are being developed in geographic clusters with “a lot of the infrastructure and a lot of the industries [being] co-located.”
Europe is leading in green-hydrogen development, with multiple sites targeted for hubs of production close to heavy industry and ports that could use the fuel. China is quickly expanding plans for hydrogen produced with excess wind and solar power and used in steelmaking and chemicals production, and Japan and South Korea have national hydrogen strategies for power generation, transportation and industrial processes.
The United States, which lacks a national strategy on green hydrogen, hasn’t seen the same scale of commitments from industry, although a handful of major production hubs are being planned. But the U.S. Department of Energy’s Hydrogen Shot initiative is targeting technology and manufacturing improvements to slash green hydrogen production costs to $1 per kilogram by 2030.
“We will already produce hydrogen below $2/kg within the next five years,” Paddy Padmanathan, CEO of ACWA Power, said in a statement. “Now we need to educate the heavy industry sectors and policymakers on the economic benefits of this new low-cost fuel, including benefits of reduced air pollution and other health and safety considerations.”
Currently, about 75 million tons of hydrogen are made each year, primarily through the “gray” steam reforming of natural gas, a process that emits carbon dioxide. That hydrogen is used for fossil-fuel refining, chemicals and fertilizer production, and other industrial purposes. Advocates of green hydrogen want to cost-effectively scale its production to displace the dirty hydrogen used today, as well as to meet a new range of decarbonization needs that are foreseen by IEA and other analysts, from steel to shipping and beyond.
A number of projects around the world are targeting “blue hydrogen,” or hydrogen made from natural gas combined with carbon capture and storage (CCS). Critics of blue hydrogen say it continues reliance on fossil fuel and is dependent on CCS technologies that have yet to be proven. Proponents say it will be needed to meet the rising demand for hydrogen to replace fossil fuels across sectors that now represent roughly one-quarter of global carbon emissions.
Eventually, the cost difference between green and blue hydrogen will boil down to the cost difference between clean energy and natural gas, Koch Blank said.
“At the moment, neither green nor blue are fully commercialized or cost-competitive,” he said. But the need for clean hydrogen will rise in decades to come, after easier-to-decarbonize sectors such as power generation, road transport and building heating are tackled — and hitting future targets in tough-to-clean-up sectors will demand aggressive investment starting now.