Articles
Overcoming challenges to build a scalable, reliable clean-H2 economy
Executive Viewpoint
ANNE-LAURE DE CHAMMARD, Group Executive Vice President, Siemens Energy, Berlin, Germany
The success of the energy transition hinges on creating a sustainable, reliable and affordable energy system for all. Solving this trilemma will be a difficult challenge. Accelerating the build-out of renewable generating capacity is critical to reducing the world’s reliance on fossil fuels and mitigating the effects of climate change. However, the transition cannot—and will not—happen overnight.
Roughly 30% of the world’s greenhouse gas (GHG) emissions originate from hard-to-abate sectors (e.g., steel, cement, petrochemicals, aviation, marine transportation) that are not easily electrified. Hydrogen (H2) and H2-based liquids and eFuels can play a crucial role in decarbonizing these industries (and others) by serving as a versatile and dispatchable chemical carrier of clean electricity. However, the world presently lacks the requisite infrastructure for widespread H2 adoption.
Given the urgent need to reduce GHG emissions and with rising global energy demand, decisive action must be taken now to lay the foundation for a scalable and reliable clean H2 economy. In the author’s view, three things must occur to make this possible:
- Accelerated timelines for permitting and fast approvals
- Specific funding of capital and operating expenditures (CAPEX/OPEX) for H2 production
- Improved supply chain security.
Streamlining the permitting and approval process to accelerate project timelines. While announcements for new H2-related projects continue to increase, only around 5% have reached a final investment decision (FID).1 This is troubling, as many forecasts show that we are already behind the level of H2 production needed to track with net-zero objectives by 2030.
Much of this is due to uncertainty about economic attractiveness to serve future demand. However, complex regulatory frameworks and the slow pace of approvals/permits are also hindering progress.
To change the trajectory, governments and regulatory bodies must collaborate with the private sector to create an enabling environment that encourages investments and stimulates innovation. Faster permitting of commercial-scale electrolyzer plants and dedicated renewable generating capacity are needed. Expedited approval of carbon capture, utilization and storage (CCUS) projects is also critical to decarbonizing existing H2 production capacity, of which more than 95% is still gray.
By making a concerted effort to reduce complexity, policymakers and regulators can accelerate development cycles and instill confidence in developers, technology providers and offtakers in the long-term prospects for the industry.
Specific CAPEX/OPEX funding for H2 production. Establishing the H2 economy will require hundreds of billions of dollars in investments from the public and private sectors over the coming decades. In its Net-Zero Emissions by 2050 Scenario (NZE), the International Energy Agency (IEA) estimates that around 70% of clean energy investment over the next decade will be from private developers, consumers and financiers.2
To attract private equity and debt financing, governments must support H2 production CAPEX and OPEX through up-front funding, tax incentives, etc. Progress has been made in recent years on this front in both Europe and the U.S.
The passing of the Inflation Reduction Act (IRA) is a significant development that transitions the U.S. from a system that favors specific clean-energy technologies to one that prioritizes outcomes (i.e., emissions reductions). The IRA’s tiered tax credit structure, which provides up to $3/kg in incentives for zero-carbon H2, will undoubtedly spur investments in electrolyzer plants, H2 infrastructures and potentially transform the U.S. into a global hub for green H2.
However, governments must continue to explore how they can provide support to bridge the cost gap between gray and green H2. The disconnect between the number of announced H2 projects and those that have reached financial close shows that current incentive frameworks in many areas of the world must be revised. Today, some 1,000 new H2 projects have been announced globally, requiring a total investment of $320 B. However, to date, would-be developers have only committed $29 B.3
Policies that incentivize H2 use in hard-to-abate sectors like cement, chemicals and steel must be developed globally. A vital component of a bankable project structure lies in a long-term offtake agreement that provides a steady revenue stream and an at-market risk allocation between the supplier and end user. These agreements are necessary for projects to move past the pilot phase.
Improve the security of supply chains. If the pandemic has taught us anything, it is just how disruptive supply shocks and the repercussions they create globally can be.
The coming build-out in renewable capacity, including wind and solar energy and electrolyzer plants, will pressure existing supply chains. In the IEA’s NZE by 2050 Scenario, installed electrolysis capacity reaches more than 550 GW by 2030.4 For context, global electrolyzer capacity stood at around 600 MW in 2021.
Relevant electrolyzer technologies use precious metals, such as iridium and platinum, and wind turbines require several rare earth metals. With demand for these raw materials expected to surge, steps must be taken to harden supply chains and increase resiliency. Diversification will be critical, as many of these elements are mined in only a few countries, some of which are difficult to access due to geopolitical factors.
The responsibility of addressing supply falls on the shoulders of public policymakers and private industries. Governments can be proactive by negotiating mutually beneficial trade agreements with their counterparties. On the private side, organizations must collaborate closely with their suppliers and vendors to ensure they also address vulnerabilities and mitigate geopolitical risks.
Building on existing momentum. While there are still hurdles to overcome to create a reliable and scalable clean H2 economy, momentum is building. Today, nine countries representing roughly 30% of global energy sector emissions have announced national H2 strategies.1
This is an encouraging trend; however, it is essential to recognize that the industry is still nascent. Strong support and financing are needed to spur growth, reduce costs and make projects bankable. Collaboration and strong partnerships are essential in achieving economies of scale and opening new decarbonization pathways for H2, particularly in hard-to-abate sectors that cannot yet be electrified.
Technology providers, developers and operators must come together to create attractive project structures for debt and equity financiers and build the market for long-term offtake. This is something the author’s company firmly believes in and has put into practice in several commercial-scale green H2 projects across the globe.H2T
LITERATURE CITED
1 International Energy Agency (IEA), “Hydrogen,” online:
https://www.iea.org/energy-system/low-emission-fuels/hydrogen
2 IEA, “The cost of capital in clean energy transitions,” December 17, 2021, online: www.iea.org/articles/the-cost-of-capital-in-clean-energy-transitions
3 Collins, L., “More than 1,000 clean hydrogen projects worth $320bn announced, but few have reached FID: report,” Hydrogen Insight, May 11, 2023, online: https://www.hydrogeninsight.com/production/more-than-1-000-clean-hydrogen-projects-worth-320bn-announced-but-few-have-reached-fid-report/2-1-1449699
4 IEA, “Electrolyzers,” online: www.iea.org/energy-system/low-emission-fuels/electrolysers
About the author
ANNE-LAURE DE CHAMMARD is a Group Executive Vice President and a member of the Executive Board of Siemens Energy. She heads Siemens Energy’s Transformation of Industry global business and is also responsible transversally for the Asia-Pacific and China regions. A member of the French ‘Corps des Ponts’, de Chammard earned MS degrees of Science and Engineering from École Polytechnique and École des Ponts ParisTech. She also holds an MS degree in Public Policy from Harvard University.
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