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Why Green Hydrogen Struggles to Find Buyers

Despite its promise as a carbon-free fuel, green hydrogen projects struggle due to a lack of binding purchase agreements, high costs, and infrastructure challenges, hindering their commercial viability, says BloombergNEF

August 14, 2024. By EI News Network

Hydrogen’s potential as a carbon-free fuel has sparked immense enthusiasm globally. From the deserts of Australia and Namibia to the wind-swept straits of Patagonia, governments and companies are planning to build nearly 1,600 plants for hydrogen production. This clean fuel, generated by splitting water molecules using wind- or solar-powered electricity, is touted as a key player in the transition to a zero-carbon future. However, a significant challenge persists: most of these projects lack confirmed customers.

According to BloombergNEF, just 12 percent of hydrogen plants designed to be low-carbon, by avoiding natural gas or reducing emissions, have secured agreements with buyers. Many of the projects that are heavily promoted as part of national strategies to become “the Saudi Arabia of hydrogen” may never materialize due to this issue. “No sane project developer is going to start producing hydrogen without having a buyer for it, and no sane banker is going to lend money to a project developer without reasonable confidence that someone’s going to buy the hydrogen,” explains Martin Tengler, a BloombergNEF analyst.

Hydrogen’s promise is evident; it could be crucial for achieving net-zero carbon emissions. When burned in a turbine or used in a fuel cell, it generates energy without emitting greenhouse gases. Currently, most hydrogen is derived from natural gas, but using renewables for production eliminates carbon emissions entirely. Analysts argue that hydrogen is essential for decarbonizing sectors such as steel production and maritime shipping, which cannot easily transition to electricity. BloombergNEF forecasts that by 2050, the world will need to use 390 million tons of hydrogen annually, more than four times the current usage, to eliminate carbon emissions from the global economy.

However, transitioning to green hydrogen is not straightforward. The cost of producing hydrogen from clean energy is four times higher than from natural gas. Businesses interested in using hydrogen would need to invest in expensive new equipment, and building the necessary infrastructure, such as pipelines for distribution, is challenging when demand is uncertain.

“It’s no different than any other energy development at scale. Natural gas pipelines didn’t get built without customers,” notes Laura Luce, CEO of Hy Stor Energy. Her company has an exclusive letter of intent to supply hydrogen to an iron mill planned by Sweden’s SSAB SA in Mississippi. Despite grand plans by countries with abundant renewable resources viz.like Chile, Australia, and Egypt, many of these hydrogen projects face delays and potential cancellations due to a lack of firm customer commitments.

The European Union aims to produce 10 million metric tons of carbon-free hydrogen by 2030 and import an equal amount, while the U.S. has allocated USD 8 billion to develop “hydrogen hubs” for production and use. Nevertheless, progress is hampered by regulatory uncertainties and logistical challenges. For instance, hydrogen transport requires supercooling or compression, or conversion to ammonia, adding complexity to global shipping efforts.

Andy Marsh, CEO of Plug Power Inc., mentions that while his company is working on European projects using 4.5 GW of renewable power to generate hydrogen, the EU's ambitious goals are still being integrated into national regulations, delaying private investments. Similarly, in the U.S., the industry and Biden administration are negotiating hydrogen tax credit requirements, adding further uncertainty.

Werner Ponikwar, CEO of hydrogen equipment maker Thyssenkrupp Nucera AG, emphasizes that successful hydrogen projects often integrate the entire ecosystem,locating plants near clean energy sources and ensuring customer proximity. His company is involved in a hydrogen plant in northern Sweden, which will supply green steel to Mercedes-Benz. This project, backed by EUR 6.5 billion (USD6.9 billion) in funding, demonstrates how aligning projects with customer needs can enhance their viability.

Hy Stor Energy is adopting a similar strategy with its Mississippi project, which will use wind and geothermal energy for hydrogen production, with the hydrogen stored in an underground salt dome. The project aims to start by 2027, with growing interest from other potential customers. “We didn’t build a project and then go and try to sell people on it. We built a project around a customer,” says Luce. “I do always think that customer-aligned projects find a way of getting built.”

This detailed exploration into the green hydrogen sector reveals the critical need for established buyer agreements and infrastructure development to ensure the successful realization of hydrogen projects. Without these elements, many ambitious plans may remain unfulfilled.
(Credit:- BloombergNEF)
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