We’ve been talking about scarcity a lot recently here at Money Morning.
In particular, when it comes to critical minerals, supply could struggle to meet demand as governments worldwide push for more ambitious emissions targets.
So if you haven’t already, I recommend you check out James Cooper’s recent presentation, ‘The Age of Scarcity’. My colleague, James, is a trained geologist, and he’s just launched his new service, Diggers and Drillers.
Make no mistake, we are going to need plenty of critical materials.
Yet when it comes to the energy transition, hydrogen produced from renewable energy — or green hydrogen — has a lot of potential to help reduce our need for raw materials like lithium and cobalt.
Hydrogen can be used to power almost anything you like, from trucks to planes and buses.
Powering transport through hydrogen may sound like a futuristic concept, yet hydrogen technology has existed for a long time. In fact, hydrogen was already powering the first internal combustion engines back in the 1800s.
So the expectation is that green hydrogen will be key for hard-to-decarbonise industries like steel and shipping.
What’s more, green hydrogen can also store excess energy. This makes it an attractive storage option when solar and wind produce too much energy.
Of course, there are challenges, but…
Challenges are starting to melt away for green hydrogen
One of the main issues facing green hydrogen has been costs.
Historically, green hydrogen has been more expensive to produce when compared to hydrogen made from fossil fuels.
I say historically because the war in Ukraine has changed things a bit.
Currently, costs to produce green hydrogen can range between US$3.80 and US$5.80 per kilogram. The Australian Government, in particular, aims to bring green hydrogen costs down to less than $2 a kilo.
Yet, as you can see below, high fuel prices in Europe have driven up the costs of blue (produced through natural gas and carbon capture storage) and grey (produced from natural gas) hydrogen as gas prices took off:
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| Source: Carbon Tracker |
What’s interesting, though, is that costs for green hydrogen have the potential to go down even further.
You see, two factors are driving its costs…and in both areas, we are seeing some progress.
One is electricity. Wind and solar costs have plummeted, which has narrowed the gap between the costs of green hydrogen and hydrogen produced with fossil fuels.
The second is electrolysers: the system that uses electricity to split water into hydrogen and oxygen.
Electrolyser installations are in for a growth spurt in the next eight years. They are expected to go from 2 gigawatts today to 242 gigawatts. Scaling up production will drive down costs.
But there’s also been a global effort to reduce the costs of electrolysers and increase efficiency.
And there’s been some breakthroughs.
For example, earlier this year, Australian start-up Hysata claimed they’ve developed a new ultra-high-efficiency electrolyser that will allow them to produce hydrogen at a production cost of well below the government’s target of $2 a kilogram.
As they explained, their electrolyser provides ‘bubble-free’ electrolysis, bringing efficiency up to 98%, much higher than the 75% or less for existing electrolyser technologies. Higher efficiency will also reduce costs.
So we could see green hydrogen prices continue to drop in the next few years.
Investment is flowing into green hydrogen
All in all, since the war in Ukraine started, there’s been US$73 billion committed to green hydrogen globally.
As my colleague Ryan Clarkson-Ledward mentioned on Friday, Germany has high hopes for hydrogen.
But we’ve also seen some interesting developments in the US.
The recent Inflation Reduction Act (IRA) introduced tax credits for hydrogen made with renewable energy, bringing costs down to US$3 a kilo.
But prices could fall even more by the end of the decade.
As S&P Global recently wrote:
‘With the basket of new tax credits for hydrogen and renewables within the US Inflation Reduction Act, analysts are projecting that subsidies could reduce the cost of green hydrogen to under $0/kg by 2030, which would rapidly accelerate the adoption of green hydrogen in the steel, transportation and power generation industries.’
So all this spells exciting news for green hydrogen, and we could see costs fall faster than expected.
All the best,
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Selva Freigedo,
For Money Morning
Selva is also the Editor of New Energy Investor, a newsletter that looks for opportunities in the energy transition. For information on how to subscribe, click here.
