A Hydrogen Future: Benefits and Challenges of an Emerging Hydrogen Economy

In our recent blog, The Hydrogen Story – How we Got Here, we examined the technologies, events, and phenomena that have caused us to arrive at the challenges we face today – these include challenges with resource adequacy and security of supply, a lack of dispatchable energy and long-term storage, and increased price volatility.  One solution to these challenges is hydrogen.  In this blog, we’ll cover the benefits of hydrogen and the challenges a hydrogen economy may present.  

The Pros: 

Variety of Production Methods 

One benefit of hydrogen is that it can be produced in a variety of ways. The first is by steam-methane reforming.  In this method, high temperature steam and methane are combined with a catalyst to produce hydrogen, carbon monoxide, and a relatively small amount of CO2.  Often, natural gas is the source of methane used for this production method.  Although biogas, biofuels and petroleum fuels are other potential sources.  Since steam-methane reforming produces CO2, it can be made a cleaner method of production when combined with carbon capture and sequestration (CCS) which captures and stores the CO2 produced in the process or the CO2 is used in some industrial processes (blue).   

Hydrogen can also be produced via electrolysis, where an electric current is used to split water into hydrogen and oxygen.  Electrolysis itself does not produce any carbon byproducts or emissions, and if renewable energy is used to provide the electricity used, then the hydrogen is completely “green”.  Electrolysis can also be powered by nuclear (pink) and fossil fuel powered electricity (grey), providing various hydrogen production methods and is generally referred to as the colors of hydrogen. 

Storage

Perhaps one of the greatest benefits of leveraging hydrogen to solve challenges facing the power grid is the storage potential.  Hydrogen can be stored in gaseous and liquid forms, and typically in naturally occurring geological formations, such as salt caverns, spent fields, or aquifers.  Hydrogen provides an alternative to chemical batteries, which only offer short duration storage, and have their own production and disposal issues.  On the other hand, hydrogen can provide long-duration storage which has many benefits, including the potential to add reliability to the overall energy mix, moving surplus energy from the shoulder season to peak seasons, and providing dispatchable energy, which is desperately needed to ensure consistent electric supply.  In turn, all these capabilities can help with price stability.  

Transportation

Hydrogen also has several potential transportation options.  Hydrogen can be transported on trucks, ships, and railways.  It can also be transported by pipeline, and it is thought that we may be able to leverage existing liquified natural gas (LNG) infrastructure to move hydrogen as well.   

Use Across Sectors

Lastly, hydrogen is unique in that it can be used in many ways across multiple sectors.  So far, we have focused on its use for electricity generation.  However, it has other uses as well.  Hydrogen can also serve as a transportation fuel, which would help decarbonize hard to abate industries like shipping and air.  Additionally, ammonia can be produced with hydrogen and nitrogen, providing clean material benefits to agricultural, plastic, refrigeration, and more.  Hydrogen can decarbonize a variety of industries like transportation, industry, and agriculture.  For these reasons, we anticipate that hydrogen will be a tradeable commodity by 2040.  

The Challenges:

This all sounds excellent, and governments around the globe are committing to funding for research and development of hydrogen production and infrastructure. However, we are still a long way from a widespread, scalable hydrogen economy.  Now that we have covered the benefits hydrogen might provide, let’s discuss some of the challenges that remain.    

Unknown costs

Many questions remain about the costs associated with a meaningful hydrogen economy.  Currently, green hydrogen capital investments costs are prohibitive.  These costs are likely to decrease over time, but how much time? Additionally, questions remain relating to:  

• How electrolyzer and hydrogen hub build costs will be re-cooped 
• How much it might cost to power an electrolyzer 
• The cost differences between green and blue hydrogen production 
• How much it will cost to build out the required infrastructure 

Infrastructure - Requirements, re-use and buildout

Speaking of infrastructure, there are also a multitude of unknows when it comes to infrastructure, including:  

• The practicality of leveraging existing pipeline infrastructure 
• What new infrastructure will be required 
• Where electrolyzers and hydrogen hubs should be located 
• The size and types of storage infrastructure required 
• The importance of different infrastructural elements 
• Operating and lifespan of electrolyzers using intermittent power supply  
• Whether grid interconnection, or off grid potential will prove most beneficial 
  

Additionally, as utility and industry scale hydrogen production and use are very much emerging, questions also remain regarding efficiency.  Hydrogen has a different energy content than say, natural gas.  In practice rather than theory, what does that mean? If hydrogen is combined with LNG, at what ratios is that possible? Will hydrogen production become efficient enough to provide adequate ROI?  Hydrogen storage and transportation will also create some energy losses, will those be small enough to be efficient? And what infrastructure mix and build will prove to be the most efficient? 

Preparing for the Hydrogen Economy

As countries and governments around the world commit to hydrogen research, production, and infrastructure, it appears whether good or bad, a new hydrogen economy is on the way.  So, what can industry players do to prepare? What needs to be considered?  

Market dynamics

The first thing anyone playing in the hydrogen space, or even in an adjacent industry, should consider is how hydrogen production and use might impact market dynamics and pricing.  If things play out as expected, hydrogen may quickly become a driver of electricity prices.  This means, asset owners competing with hydrogen generators will need to know how to compete.  Additionally, large-scale electricity users need to keep an eye on these dynamics from a cost perspective.  Hydrogen players will also need to consider market dynamics – how might they impact the ROI of hydrogen production?  How will renewable generation and pricing be impacted, and how will that in turn affect hydrogen production?  Will hydrogen ever effectively be in the money?  And all players need to consider what new markets may emerge that would impact market pricing.   

Co-optimization

Something else players across sectors and industries need to begin to consider is co-optimization.  As electrification increases and the hydrogen economy takes off, we will see traditionally disparate markets combined.  This will lead to a variety of challenges and questions.  As markets combine and systems are co-optimized, how should the value of the hydrogen economy be accurately forecasted?  As we start measuring and modeling these co-optimized systems, what units of measurement, time granularities, and data sources should be used?     

PLEXOS & H2 Datasets

While much remains to be discovered when it comes to hydrogen, Energy Exemplar’s PLEXOS Platform is here to help – PLEXOS provides insight into every aspect of the hydrogen economy, and the impact it will have on industries, sectors, and markets worldwide.  Unlike traditional modeling tools, the PLEXOS Platform inherently solves cross-commodity and co-optimization problems.  Additionally, PLEXOS contains all the functionality required by analysts and decision makers alike to investigate a variety of scenarios and make investment and operational decisions that will maximize the opportunities, and mitigate the risks that hydrogen presents to a variety of industries and sectors.

Interested in learning more about hydrogen? Check out our recent 3-part Hydrogen Webinar Series!