Hydrogen has long been lauded as a cornerstone of the clean energy future. Its versatility has driven high hopes for its role in addressing challenges within the energy transition. However, an overly optimistic and unfocused approach to its applications has led to fragmented investments, which have diluted efforts in areas where hydrogen could truly make a transformative impact. Despite these hurdles, the potential of hydrogen remains undeniable, demanding strategic alignment and focused development.
Hydrogen: A Fuel with Wide-Ranging Applications
The appeal of hydrogen lies in its potential to decarbonize hard-to-electrify sectors like shipping, aviation, and heavy industries such as steel and fertilizer production. Hydrogen-derived fuels and technologies, when deployed effectively, can drastically reduce carbon emissions. However, this versatility has also posed challenges, with resources being scattered across a variety of uses rather than being concentrated on sectors where hydrogen offers the most value.
National and regional hydrogen strategies, while visually appealing and rich with promising data, need to move beyond high-level aspirations to actionable plans. Achieving the potential of hydrogen requires clearly defined investments and policies that address critical gaps in infrastructure, skills, and technology.
The Challenges Facing Hydrogen Investment
Investors have faced several hurdles in advancing hydrogen projects. While government targets and incentives have created opportunities, the complexity of these projects often deters final investment decisions (FIDs). Key challenges include:
1. Supply Chain Constraints
The costs associated with hydrogen production and distribution remain high, largely due to underdeveloped supply chains and increased demand for renewable energy sources to power green hydrogen production.
2. Infrastructure Limitations
Transport and storage infrastructure for hydrogen is still in its infancy. Without robust systems, scaling up production to meet global demand becomes a formidable task.
3. Asymmetric Supply and Demand
The lack of a balanced supply and demand model further complicates project planning. Non-competitive power purchase agreements (PPAs) and skewed off-taker arrangements exacerbate these issues, making it challenging to secure financing.
4. EPC Sector Inexperience
The engineering, procurement, and construction (EPC) sector has limited experience with hydrogen projects, adding to the risk profile and slowing progress.
5.Technological Competition
Alternative technologies, such as industrial-scale heat pumps and advancements in battery storage, present competing solutions, creating uncertainty for investors.
Realizing Hydrogen’s True Potential
Despite the obstacles, the outlook for hydrogen remains optimistic. Incremental progress is being made, with a growing body of evidence supporting hydrogen’s viability in specific applications. However, a shift in focus is essential to unlock the full potential of hydrogen.
Strategic Investment in Targeted Areas
Hydrogen holds the greatest promise in hard-to-electrify industries and energy-intensive processes. Industries such as shipping, refineries, and fertilizer manufacturing offer significant opportunities for carbon reduction through hydrogen adoption. These sectors must remain a priority for investment and development.
At the same time, limiting hydrogen’s applications too narrowly could hinder opportunities to innovate and export technologies and skills globally. Expanding the scope of hydrogen deployment can help build engineering capabilities and stimulate broader economic growth.
Cluster-Based Project Models
Four distinct project archetypes are emerging in the hydrogen sector:
- Direct supply and demand projects: Small-scale systems where hydrogen is produced and consumed onsite.
- Masterplan clusters: Coordinated hubs that integrate multiple stakeholders and technologies.
- Cluster-enabling projects: Initiatives designed to address infrastructure and logistics challenges.
- Research-led projects: Focused on advancing hydrogen technologies and improving efficiency.
These archetypes provide a roadmap for accelerating hydrogen adoption and addressing challenges in scalability and infrastructure.
Hydrogen in Power Generation
In the context of decarbonizing the power sector, hydrogen offers both promise and limitations. While green electrolytic hydrogen, a process powered by renewable energy—reduces emissions, it is not a standalone solution for the power sector. The inefficiency of using renewable electricity to produce hydrogen, only to convert it back to electricity, results in a whole-system efficiency of just 20-40%.
For hydrogen to play a meaningful role in power generation, long-duration energy storage solutions such as salt caverns and a robust distribution network are essential. Additionally, careful site selection and optimization of value chains are critical to making hydrogen cost-effective for grid applications.
A fully decarbonized grid of the future will likely involve a mix of technologies, including batteries, hydrogen storage, and other clean, dispatchable power generation methods. Hydrogen will serve as a crucial component during times of surplus renewable energy, enabling the production of e-fuels or acting as a medium for long-duration energy storage.
Policy and Economic Implications
Governments have a pivotal role in advancing the potential of hydrogen. Investments in hydrogen infrastructure, coupled with regulatory support, can de-risk projects and attract private capital. For example, policies that incentivize renewable energy use in hydrogen production, provide tax credits, and establish national hydrogen funds are essential for market growth.
The establishment of national energy companies focused on clean energy could further accelerate hydrogen adoption. By owning and operating hydrogen projects, these entities can reduce risks for private investors and stimulate economic activity.
Hydrogen’s Role in Global Decarbonization Goals
While hydrogen is not a universal solution, its applications in key industries make it indispensable for achieving net-zero targets. The potential for hydrogen to decarbonize industrial processes, provide clean transportation fuels, and support grid reliability underscores its importance in the global energy transition.
Long-Term Benefits
Hydrogen adoption offers long-term economic and environmental benefits, including:
- Job Creation: Developing hydrogen infrastructure can create employment opportunities across engineering, manufacturing, and logistics sectors.
- Energy Security: Hydrogen production using domestic renewable energy reduces dependence on imported fossil fuels.
- Export Potential: Countries investing in hydrogen technologies can position themselves as global leaders, exporting expertise and equipment to emerging markets.
The Way Forward
The journey toward realizing the potential of hydrogen involves overcoming significant challenges. Collaboration between governments, industries, and investors is crucial to addressing supply chain constraints, building infrastructure, and fostering innovation.
While hydrogen is not a “Swiss Army knife” capable of solving all energy transition challenges, its applications in critical areas make it a cornerstone of the clean energy future. Strategic investments, coordinated planning, and continued advancements in technology will be essential to unlocking hydrogen’s full potential.
By focusing efforts on high-impact applications and addressing barriers to adoption, the hydrogen sector can play a transformative role in decarbonizing industries and achieving global climate goals. Hydrogen’s potential is vast, and with the right support, it can lead the way to a sustainable and carbon-neutral future.