Bloomberg: Why almost nobody is buying green hydrogen

New York, September 2 (CTK/Bloomberg) – Hydrogen’s potential as a carbon-free fuel has generated endless enthusiasm. From the deserts of Australia and Namibia to the wind-battered straits of Patagonia, companies and governments around the world are planning to build nearly 1,600 plants to produce it. The gas can be produced cleanly, using electricity from wind or solar power, in a process that splits water molecules into hydrogen and oxygen. But there is one problem – the vast majority of these projects do not have a single customer willing to buy the fuel, Bloomberg reported.

Of the handful that have some kind of fuel purchase agreement, most have only vague, non-binding terms. These can be quietly scrapped if potential buyers change their minds. As a result, many of the projects now being touted with great fanfare by countries aspiring to become the „Saudi Arabia of hydrogen“ will probably never be built. Only 12 percent of hydrogen plants have contracts with customers to use the fuel.

„No sensible project developer will start producing hydrogen unless they have a buyer for it, and no sensible banker will lend money to develop a project without sufficient certainty that someone will buy the hydrogen,“ says Martin Tengler, an analyst at BloombergNEF.

It is easy to see why hydrogen’s proponents believe it has such potential. The molecule could be crucial to achieving net-zero emissions in the fight against climate change. When burned in a turbine or used in a fuel cell, it produces energy without releasing greenhouse gases into the atmosphere. Almost all hydrogen used today is made from natural gas, but producing it from water using renewable energy does not release any carbon dioxide.

Many analysts see no other way to decarbonize steelmaking, shipping and other sectors that cannot easily operate using electricity alone. BloombergNEF estimates that 390 million tonnes of hydrogen will be needed annually in 2050 to eliminate carbon dioxide emissions from the global economy. That is more than four times the amount used today.

But switching to hydrogen is not easy. Most businesses that could use hydrogen would need expensive new equipment to do so, and are reluctant to buy it. Hydrogen produced using clean energy costs four times as much as hydrogen made from natural gas. At the same time, it is difficult to build infrastructure to supply hydrogen – not only production plants, but also pipelines to transport it – when demand may not emerge for several years.

Countries with the potential to generate large amounts of renewable electricity, such as Chile, Australia and Egypt, have announced ambitious production targets for the fuel, often for export. In China alone, more than 360 green hydrogen plants have been announced.

The European Union has set a target of producing ten million tonnes of carbon-free hydrogen and importing the same amount by 2030. In the United States, President Joe Biden has allocated eight billion dollars (roughly CZK 184 billion) to create so-called hydrogen hubs, or clusters of companies producing and using the fuel.

Plug Power CEO Andy Marsh said his company is doing engineering and design work on European projects that would together use around 4.5 gigawatts of renewable energy to produce green hydrogen. „If half of them get built, we’ll be happy,“ he said. „If a quarter get built, we’ll be happy too,“ he added. Although the EU has set ambitious targets, member states are still incorporating them into their regulations, delaying private investment, Marsh noted.

In the US, industry and the Biden administration continue to dispute the requirements for qualifying for hydrogen tax credits under federal law. Meanwhile, export-oriented projects face additional hurdles. Unlike natural gas and oil, there is not yet a global system for transporting hydrogen. Transport requires cooling it to very low temperatures, compressing it, or carrying it in another, more manageable form, such as ammonia, which combines hydrogen with nitrogen.

Werner Ponikwar, CEO of hydrogen equipment maker Thyssenkrupp Nucera, sees pipelines as a good option. But many future hydrogen exporters will not be able to deliver hydrogen to potential customers by pipeline. „If you have to cross an ocean, it is more difficult,“ Ponikwar noted. Many expect the more ambitious projects to be quietly scrapped. Some proposed plants have already been delayed.

Ponikwar said projects with a chance of success today are those that bring together an entire ecosystem: a hydrogen plant located close to a clean energy source, with a ready customer close at hand. His company, for example, is supplying equipment for a hydrogen plant in northern Sweden that will supply a steelworks being developed by H2 Green Steel. The company has raised 6.5 billion euros (CZK 164 billion) for the project. The plant will get its electricity from hydropower plants, which are plentiful in the region. Mercedes-Benz Group has already committed to buying 50,000 tonnes of steel a year.

Hy Stor Energy is taking a similar approach. It has proposed a project located close to its customer, SSAB. The project in the US state of Mississippi will use wind and geothermal energy to produce hydrogen, which will be stored in an underground salt cavern. Other customers are now interested in the project. Construction has not yet begun, but the aim is to bring it online by 2027.

„We didn’t build a project and then try to sell it to people. We built a project around the customer,“ said Hy Stor CEO Laura Luce.

„I think customer-tailored projects will always find a way to get built in the end.“