Critical Phase Looms for Low-Carbon Hydrogen

The first wave of final investment decisions (FIDs) in a new generation of world-scale green hydrogen projects looms. Stakes and interest are high. As of end-January 2023, the number of active clean hydrogen projects has swelled to 1,046, involving investment of $320 billion. This compares with 684 projects a year earlier, according to the Hydrogen Insights 2023 report, released last week.

Both Europe and the US — through its Inflation Reduction Act — have delivered important clean hydrogen legislation and incentives. But further regulatory clarification is needed and expected this year on both sides of the Atlantic. Elsewhere multiple jurisdictions across the globe, from Namibia to Australia and Mauritania, are rolling out new laws and incentive packages to kick start their hydrogen economies.

Key auctions to provide developers with assured long-term contracts, necessary to spark investment, should also be soon concluded. The results of what European climate commissioner, Frans Timmermans described as a “very promising” first European tender for Green Hydrogen derivatives, the €900 million ($978 milion) German H2Global offering, should be out in the next couple of months, says a source from one of the firms that bid. More is expected, both from Germany — which should have €3 billion available for green hydrogen and the EU.

Offtake Challenge

These initiatives should ensure a green hydrogen industry is created. Higher raw material costs and interest rates have not helped what were already eye-wateringly high capital costs. And the sector is going to need all the help it can get. Thus far, the investment community has viewed green hydrogen with caution. “You have got both infrastructure and technology risk, but just infrastructure returns,” noted one financier, attending last week’s World Hydrogen Summit in Rotterdam. With developers struggling to close offtake deals, the guaranteed demand the European support will provide, is going to be critical.

What commercial scale green hydrogen projects that have progressed to FID stage are largely strategic, driven by big industry players. Firms need to be bold and take FIDs early even if “all the jigsaw pieces are not in place,” argues executive Olivia Breese of Norwegian green developer, Orsted. “We know we will make mistakes but it's in making those mistakes that we learn to scale up,” she told the conference.

Having the scale to both be developer and offtaker has been critical for some projects, such as Shell’s Holland Hydrogen 1 (HH1) project in Rotterdam. Output from HH1, which will be Europe’s first industrial scale green hydrogen project when it comes on stream in 2025, will go into Shell’s own refinery system.

Survival Of The Fittest

Demand for green hydrogen will be huge. Estimates for the German market alone range from 1 million-2 million tons per year, rising to 6 million-10 million tons/yr by 2045. But cost, technology and bureaucratic hurdles are slowing development. And Europe is going to struggle to meet its 2030 target of 20 million tons/yr (half of which should be imports). A lot of projects will not see the light of day. In such a harsh investment environment, developers are going the extra mile to design robust and competitive projects.

Gone are the days, when one good renewable resource was considered enough for a long-haul clean hydrogen project. Intermittency mitigation is the key factor for most projects. For this, both robust wind and solar resources are required, such as in Australia, Namibia and Mauritania. Having access to hydro-power is a big selling point of East Canadian and Brazilian projects. For some, such as the UAE, having "pink" hydrogen output (from nuclear power) could be critical. Similarly, in jurisdictions where grid power is overwhelmingly renewable, access to the grid could be a major selling point, such as Proton Ventures' project in the north-eastern Brazilian port of Pecem.

For Brian Maxwell, CEO of developer Green Hydrogen International (GHI) good natural storage is critical to combat intermittency. “There is a reason why Henry Hub is a hub [in the natural gas industry]. It is because it has three salt caverns of storage,” he says. “We see the value in salt and that is the choke point in the value chain.”

GHI is developing its own mega-project in Texas near the future green hydrogen hub of Corpus Christi. It is poised to bring a major investor into this $7 billion project, which envisages 2.2 gigawatt electrolyzer capacity and output of 280,000 tons/yr of hydrogen, with FID targeted in late 2025. In addition to salt caverns for GHI's own project, Maxwell has built up a side business purchasing mining rights in potential future green energy locations, including in the US, eastern Canada, and Australia.

Staying Home

Others are looking to minimize the huge challenges of transporting hydrogen, by building significant domestic usage potential into their projects. “In a world of uncertainty you make sure you keep options open, notes Grant Hewitt, CEO of CWP Global, developer of green hydrogen mega-projects in both Australia and Mauritania. In Australia, it sees considerable potential use for its hydrogen projects and in both Australia and Mauritania it is looking at producing direct reduced iron, a product that can be used to make Green steel.