Green Hydrogen Goes From Hyped to Humbled on Eye-Popping Costs

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(Bloomberg) — A slew of projects to produce green hydrogen, a fuel described as essential to reaching net zero, were abandoned this year as forecasts of lower costs failed to materialize.

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Governments and major energy companies have promoted gas as a way to clean up a wide range of industries. But the uneconomic cost of production has forced many developers to scrap their plans, leaving the emerging sector struggling to attract the billions of dollars it needs to effectively cut carbon emissions.

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“It’s been a reality check regarding the costs involved in hydrogen projects,” said Gnomir Fleiss, an independent hydrogen analyst. “The industry overpromised and did not deliver. It is natural that there will be a kind of natural decline and cooling of some of the excesses that were pledged.”

Green hydrogen, which is made using renewable electricity to split molecules in water, has been promoted as a potential solution to cutting emissions from anything that currently relies on coal or natural gas, such as steel production, shipping and even home heating.

“Hydrogen is the Swiss Army knife of energy,” Eric Tohn, technical lead on the investment committee at Breakthrough Energy Ventures, said this month on Bloomberg Channel’s Zero podcast. “If you have enough hydrogen and it’s cheap enough, you can do anything.”

Low-carbon versions of the fuel can also be produced using equipment to capture emissions, or perhaps by extracting them directly from the ground.

But development remained more expensive than many expected. Analysts at BloombergNEF have raised their cost estimates for green hydrogen projects in the US and EU by 55% this year, compared to expectations for 2022. This is due to design and engineering processes that have proven to be more complex than initially thought. In Europe, the jump in energy prices has also led to higher input costs.

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As a result, the cost of producing hydrogen using clean energy is four times more expensive than producing natural gas, according to BNEF. It is not surprising then that the majority of projects do not have a single customer who comes forward to purchase fuel. Without willing buyers, there can be no output.

“Commercial development of the liquid e-fuel retail market has progressed much more slowly than previously expected,” Orsted A/S CEO Mads Nipper said earlier this year when he scrapped plans for a $175 million Swedish plant to produce shipping fuel from hydrogen. “Expectedly.” “We were unable to conclude long-term purchase contracts at sustainable prices.”

Other projects that have fallen by the wayside include a hydrogen and ammonia export plant in Tasmania and more than a dozen early-stage development projects planned by British oil major BP Plc.

Market shrinking

A year ago, the buzz in the industry sparked a wave of new hires. Ross Thompson, a management consultant at recruitment firm Ably Resources Ltd, said: In Glasgow, executive and engineering roles are in high demand, and he said his company was seeking to fill more than 30 hydrogen-related roles at any one time. Now the number is less than a dozen.

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“There has been a big trend in hiring, but over the last couple of months there has been a decline,” Thompson said in an interview. “I’m a big believer that hydrogen will take off, but not in the next few years.”

It would certainly be helpful if government support were better planned and accelerated. While governments have widely praised hydrogen’s potential, controversy over the details of subsidies has slowed progress. In the European Union, it took years for bureaucrats to define what qualifies as green hydrogen. The United States, whose inflation control law allows for generous aid, has gone through a similar process.

There are signs of modest growth in this sector. Clean hydrogen production is set to triple this year compared to 2023. But this is still only enough to meet about 1% of demand. Most hydrogen is currently manufactured using natural gas or coal, generating carbon emissions in the process.

“We’ve seen what hasn’t worked so far so we can focus on what does work,” said Sami Al-Issawi, a hydrogen analyst at BNEF. “The hype is gone. Now you can say the real work has begun.”

-With assistance from Gina Turner.

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