Hydrogen energy: the industry’s response

Gerald Moser, Chief Investment Strategist, Barclays Private Bank, explores the potential opportunities that may emerge with Daryl Wilson, Executive Director of the Hydrogen Council. The Hydrogen Council promotes collaboration between governments, industry and investors in deploying hydrogen solutions globally. The coalition represents 92 companies and investors with total revenues of over €18.9 trillion.

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Renewable energy solution

Gerald Moser: Why the interest in hydrogen now?

Daryl Wilson: A confluence of factors have accumulated over the last two years. First, renewable energy costs have fallen more quickly than expected and hydrogen extends the reach of renewables into the whole energy system. Another factor is the growing interest around climate change, more specifically, that transitioning to a low-carbon world is not going to be possible without a solution like hydrogen to complement renewable energy and electrification. If you look at the Energy Transitions Commission report “Mission Possible¹”, hydrogen is a critical component in reaching our objectives.

Finally, there has been great progress in technology and scalability in hydrogen production that has reduced the cost of production. Those three factors, in addition to the green focus of the economic recovery, that are leading governments around the world to consider using public funds to support hydrogen in the energy transition process.

Gerald Moser: What is required for the hydrogen market to take off?

Daryl Wilson: I think this question triggered the creation of the Hydrogen Council back at the World Economic Forum in Davos in 2017. The questions of scale and cost go together: as the scale of an industry increases, the cost of production usually goes down. There is a learning curve. We have seen this movie before with wind, solar or battery technology. Our latest analysis suggests that the cost will come down, that the technology solutions are scalable and that hydrogen can achieve a meaningful contribution to climate change objectives through energy transition because of these improvements.

There are other factors required for the industry to scale. For example, recent announcements around infrastructure expenditure by governments are very important. Whenever we have faced a major transition in society, there has always been an infrastructure cost to make the transition. We saw that with highways, gas infrastructure, mobile phones and wifi.

All those various changes have required significant infrastructure expenditure and hydrogen is not different. It represents a major change in our energy system and there is going to be a need for significant infrastructure spending. But it looks like this might happen very soon.

Government policies around incentives, taxation, energy pricing are as important to support the hydrogen industry as the infrastructure effort previously mentioned. And we start to see movements in those areas as well. It is very encouraging for the industry.

Gerald Moser: How does hydrogen compare to battery as a means of storage?

Daryl Wilson: There are many ways to store energy and batteries are the one we are the most familiar with. But when you transfer electrical energy into hydrogen, the capacity for storage is among the highest capacities available.

Today the most widespread use of high-scale energy storage is pumped-storage hydroelectricity – water pumped from a lower elevation reservoir to a higher level one and let to fall to recover the energy. Hydrogen could also play that role. Batteries lend themselves better to smaller scale storage application. The amount of energy used is dramatically lower than the power you can store using hydrogen. So the main difference is about scale.

Greener governments

Gerald Moser: Are government incentives necessary and how best can governments incentivise the market towards hydrogen?

Daryl Wilson: The Hydrogen Council looked at this question carefully and identified in our January 2020² report on cost that nine out of the 35 use cases studied for hydrogen will be cost competitive with conventional options by 2030. This is not very far away and there are solutions today and in the near-term which can make contributions without government incentives.

It is not necessarily about financial incentives but also about policy structure. For example, in Switzerland, the country is in the course of deploying a thousand delivery trucks fuelled by hydrogen. There are no financial incentives for those trucks directly but there is a recognition that the alternative solution in trucking will be disadvantaged in the years to come because of their carbon footprint.

Whether it is the price on carbon or some policy recognising the impact of carbon, this is likely to be a necessary support to see the ongoing growth in hydrogen solutions.

Impact on industry

Gerald Moser: In which parts of the economy could the effect of hydrogen be the most important?

Daryl Wilson: Apart from transportation, which I alluded to with the trucks example, there are two sectors I would highlight briefly. First, utilities and energy. At the moment we use liquid fuel and natural gas to move energy around, but hydrogen also has a wonderful ability to carry energy around. It has a great potential for energy storage which becomes critically important as a growing share of energy stems from renewable sources. If you start using hydrogen as storage, it can be coupled with the application in transportation.

Then there is the industrial sector. It is relevant for heavy industrial processes such as steel, glass or cement making. Those industries require very large amounts of energy and many players in those industries have expressed a commitment to be carbon-neutral in the near future. Really the only way to do that is to use hydrogen, which is carbon free.

Countries battle for a $2.5 trillion market

In a report in 2017 about scalability of hydrogen³, we forecast that the hydrogen market could reach $2.5 trillion by 2050. This is a huge market opportunity and certain countries are off to a very strong start, having invested in hydrogen for the last few decades. One of the attractive attributes about hydrogen is that it is less about natural resources endowment than is the case with most energy sources. Hydrogen is something that can be developed almost everywhere by almost anyone.

There is a democratisation of energy when you start to use hydrogen. There are countries in Europe which have taken a lead, notably thanks to their investment in renewable energy. They have realised the potential of hydrogen to extend that low-carbon direction. Korea, Japan and China have all made big commitments in hydrogen and are making very good progress. In North America, there are states like California where there is a lot of interest and are making a good start with renewable energy.

Across the world there is the potential to develop hydrogen as an energy vector and there is little real impediment for anyone to participate in this game. In our 2017 report about scalability, we estimated that hydrogen could reach 18% of total energy demand by 2050. That is a very significant piece of the pie.

Hydrogen headwinds

Gerald Moser: What could be the main headwinds for hydrogen?

Daryl Wilson: For a long time, awareness about the potential for hydrogen was the main headwind. But as mentioned before, there is a willingness for the different COVID-19 recovery plans around the world to accelerate the energy transition effort from carbon sources. And with the progress on scalability and the increasing share of renewable energy in the energy space, the momentum in favour of hydrogen has never been stronger.

The current general headwinds facing the economy have not been so for hydrogen. But major changes are never easy or linear and there is still a need to grow awareness about the potential for hydrogen. There is also a need to develop much larger scale projects. As those would be the first of a kind, it is likely that progress will initially be slow because of learnings that still needs to take place. But the larger projects there are, the faster we can climb the learning curve.

Finally, governments need to put in place effective strategies to make the infrastructure expenditures where it would have the biggest impact in the shortest period of time.

Investor opportunities

In another article in our review of hydrogen energy we look at how the element can fit into the broader mix of renewable energy sources and the investment possibilities open to investors.

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