By Xavier Lara
It’s hard to avoid green hydrogen nowadays. Interest in the topic has soared five-fold in the last 12 months as governments and the private sector have seized upon renewably produced hydrogen’s potential.
In little more than a year, green hydrogen has seemingly gone from being an industrial oddity to the low-carbon fuel of choice for industrial feedstocks, heating, energy storage and motor, rail, marine and air transportation.
This seems like a lot for an energy source that is still very much in development.
Last year, green hydrogen—which is produced via electrolysis using water and electricity from renewable sources—accounted for less than 1% of the total industrial production of the gas, according to the analyst firm Wood Mackenzie.
If getting to 100% in time to meet global climate targets by 2050 already sounds like a stretch, then consider that current hydrogen production is almost exclusively used for industrial processes such as ammonia synthesis.
Hence, production levels may have to rise several thousandfold if green hydrogen is to support heating, seasonal storage and transportation applications as well. Is this feasible? Let’s look at some analyst predictions.
Quince Market Insights, for example, expects the green hydrogen market to see a compound annual growth (CAGR) rate of 13.4% in volume and 15.7% in economic terms between 2020 and 2028.
Grand View Research, meanwhile, estimates the market was worth almost $787 million in 2019 and will see a CAGR of 14.2% between 2020 and 2027. And Reports and Data puts green hydrogen’s CAGR at 14.1% over the next seven years, rising from $894 million in 2020 to $2.6 billion in 2028.
Based on these forecasts, it seems the green hydrogen sector is due to have a CAGR of 14% for most of this decade.
Assuming production volume roughly tracks the growth in market value, and this 14% CAGR remains constant over the next three decades, then—based on an annual production rate of 0.36 million tons (Mt) in 2019—we should be seeing around 16 Mt of green hydrogen a year in 2050.
That may sound like a lot, but it’s not. For comparison, global hydrogen production in 2019 amounted to 70 Mt, with around 95% coming from carbon-intensive processes such as steam reforming and coal gasification.
Put another way, on current projected growth rates not only will green hydrogen production fail to deliver enough capacity to support applications such as heating and transportation, but it won’t even cover a quarter of today’s demand for industrial purposes.
Does this mean green hydrogen is all hype and no substance? Far from it. In fact, there are reasons to suspect that green hydrogen’s potential is actually being under-hyped at the moment, and that growth will far exceed current expectations.
The first reason is that our prediction of a constant 14% CAGR for green hydrogen over the next three decades is almost certainly wrong. Technology adoption usually follows an S-shaped curve rather than a straight line.
That means we would expect the CAGR to increase along with growing adoption, until such a point as the market starts to become saturated. A similar trend has been seen in solar energy, where adoption rates regularly exceed the scenarios provided by bodies such as the International Energy Agency.
Another reason to expect rocketing green hydrogen production in the coming years is that some of the richest companies on the planet are committed to making it work. Specifically, oil and gas companies are among the players most keen to kick-start a hydrogen economy.
March 2021 alone, for example, saw hydrogen memorandums of understanding being signed between BP and Northern Gas Networks in the UK, Saudi Aramco and Hyundai Heavy Industries in South Korea, and Snam and Mubadala Investment Company in the United Arab Emirates.
The presence of such industrial heavyweights in the nascent green hydrogen arena could help the technology to scale up much more quickly than has been the case with the solar or wind sectors, which early on were dominated by small manufacturers with limited growth capacity.
Furthermore, it’s not just rich oil and gas companies that are pushing a green hydrogen agenda. The hydrogen economy is also seeing significant support from governments and other industrial segments.
Besides chemical giants such as Linde and Air Liquide, multinationals such as Boeing and ArcelorMittal are backing green hydrogen production as a key element in decarbonization plans for sectors ranging from steel manufacturing to aviation.
All this would be expected to lead to an industrial multiplier effect, where massive investments from a range of connected industries, aided by public sector regulations and incentives, create explosive market growth in a relatively short span of time.
It’s also important to bear in mind that a hydrogen economy is seen as being massively desirable by renewable energy developers.
Although most electricity markets still have a long way to go before becoming saturated with clean energy, the need for additional low-carbon generation to power hydrogen electrolyzers opens up a massive potential new market for wind and solar companies.
Finally, green hydrogen has one other thing going for it. In the race to cut emissions, we need low-carbon fuels—and there aren’t that many other options out there. Fossil-fuel alternatives such as green ammonia may require the production of hydrogen as a precursor, making them less efficient.
Hence, it’s a fair bet that the excitement we’re seeing around green hydrogen today is just the beginning of something much bigger.
And at Pacific Green, we are already adding to this momentum with plans to develop zero-carbon hydrogen and ammonia through global agreements with major industry partners.
Our aim is to become a world leader in the green hydrogen and ammonia value chains, through the creation of dozens of projects worldwide. To find out more about the green hydrogen opportunity, contact us now.