March 17, 2021

Hydrogen Production from Excess Renewables

Part 1 of 10: Realizing a Hydrogen Economy Series
Holland & Knight Energy and Natural Resources Blog
Mark C. Kalpin | Seth R. Belzley | Taite R. McDonald | Saqib Z. Hossain
Energy and Natural Resources Blog

Propelled by the global tailwinds of net zero and decarbonization initiatives, green hydrogen has captured the attention of political and market actors alike. The upside for this nascent industry is massive – a versatile clean energy carrier that could decarbonize fossil fuel reliant industries, disrupt the energy industry and help turn the tide in the battle against climate change.

Recognizing this potential, a number of countries have already set ambitious targets to advance their green hydrogen strategies. Among the first countries to have done so was Japan, which issued a "Basic Hydrogen Strategy" in 2017 that introduced Japan's vision of becoming a "world-leading hydrogen-based society." Japan then proceeded to complete a 10 megawatt (MW) green hydrogen plant in March 2020, which at the time was considered the largest in the world. By the start of 2021, Canada became host to the world's largest green hydrogen plant, with its 20 MW nameplate capacity. Along the way the European Union established a green hydrogen installation target of 40 gigawatt (GW) by 2030, while Chile announced a 25 GW target by 2030 in its effort to become the "cheapest producer of green hydrogen on Earth." Other countries in this rapidly growing list include China, South Korea, Australia, Saudi Arabia and Portugal.

A key driver behind the pursuit of a hydrogen economy is the abundance of sectors that stand to benefit from the decarbonization applications of green hydrogen.

Compared to rechargeable electric batteries, hydrogen fuel cells take a shorter time to refuel and reducing operational downtime presents a compelling value proposition for optimizing supply chains. Several "big box" and other retailers are notable early adopters of hydrogen-powered forklifts in their warehouses, and corporate interest in leveraging hydrogen-sourced operations continues to rise.

The use of hydrogen-powered fuel cells as a backup power source for heavy duty transport (such as freight or long-haul trucking) has also emerged as another avenue for the initial deployment of green hydrogen. In aviation, where a transition from petroleum to biofuels is already underway, the industry can expect to see potential synergies with green hydrogen solutions. The production of green ammonia from green hydrogen could be a boon for decarbonizing the shipping industry. In cities, incorporating green hydrogen into the existing natural gas networks presents a low carbon option for heating commercial buildings.  

The conceptual framework for the hydrogen economy is perhaps clearer than ever before, but how far is the industry really from reaching the inflection point where the much-vaunted applications of green hydrogen are unlocked?

The lion's share of current hydrogen production is considered "grey hydrogen," which is made using fossil fuels. It is the cheapest to produce, and thus the most readily available hydrogen on the market. Production of "blue hydrogen" also relies upon fossil fuels and natural gas in particular, but uses carbon capture, utilization and storage methods to reduce emissions, which in turn makes it more expensive to produce than grey hydrogen.

Consequently, as suggested by its name, the immediate gating issue for green hydrogen's widespread deployment is that generating cheap renewable energy is a prerequisite for producing cost-competitive green hydrogen.

On the other hand, the development of renewables has outpaced the corresponding development of grid infrastructure, and at times renewable energy generation significantly exceeds electricity demand. For decades, the U.S. has relied on pumped storage hydropower to handle electricity oversupply issues. Pumped hydro is easily the most cost-competitive, utility-scale energy storage option, but siting and construction challenges are an impediment to building new projects. More recently, the majority of all new energy storage installations have come from lithium-ion battery technology. Questions about safety and reliability loom over the battery storage industry, but in the long term these systems could evolve into a crucial energy storage tool for the grid.

Producing green hydrogen from excess renewable energy is another option. Instead of being curtailed by grid operators or sold into the wholesale market at depressed prices, excess renewable energy can be supplied to electrolysers that use the electricity to split water into hydrogen and oxygen via a process known as electrolysis.

In the past, natural gas was widely viewed as the "bridge fuel" to renewables. In the context of transitioning to green hydrogen, this status has also been ascribed to the role of blue hydrogen. Using renewable electricity at times when it is not otherwise needed by the grid serves a similar function by potentially improving the economics for the initial deployment of green hydrogen. If renewable generators are able to pair their power systems with electrolysers (similar to how battery storage devices are co-located with renewables), the resulting stored energy could bolster revenue streams by providing electricity during peak demand, while also enhancing the reliability of the grid.

In the U.S., the industry is beginning to see movement with projects looking to achieve the envisioned dual benefits to the grid and power generator from converting excess renewables into hydrogen. In Florida, an electric utility recently proposed to build a 20-megawatt green hydrogen pilot project that would produce hydrogen from excess solar power.

For the majority of stakeholders however, renewable electricity prices do not support the industrial scaling of green hydrogen, which is two to three times more expensive than blue hydrogen. Renewable electricity prices from wind and solar continue to fall year over year, which is certainly promising, but the current investment costs for electrolysers are also prohibitively high. Moreover, the magnitude and complexity of developing a national hydrogen delivery infrastructure represents another significant financial barrier.

The U.S. government can play an instrumental role in enabling economies of scale for the production of green hydrogen. The next part in this series will further explore how the government can shape market structures through its financing, policy and technology development initiatives.  

For additional articles in the Realizing a Hydrogen Economy series, please visit Holland & Knight's Energy and Natural Resources Blog.

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