From Niche to Mainstream: Green Hydrogen Market Sees Exponential Growth

Governments, corporate leaders, scholars, and other stakeholders globally are actively seeking to expedite the ongoing shift towards sustainable energy to achieve carbon neutrality. Meeting the objectives outlined in the Paris Agreement, which entail limiting global warming to below 2°C and striving for a more ambitious target of 1.5°C, necessitates a fundamental transformation of economies. This transformation involves the replacement of outdated fossil fuel-based systems with cleaner, low-carbon energy sources like renewables. Green hydrogen, produced through electrolysis powered by renewable energy, has emerged as a transformative technology with the potential to address these challenges. Green hydrogen offers a sustainable alternative to traditional hydrogen production methods, which rely on fossil fuels and result in significant carbon emissions. With the decreasing costs of renewable energy and electrolysis technologies, the economic viability of green hydrogen production is rapidly improving. This trend is driving investments and spurring market growth across diverse sectors, including transportation, industry, power generation, and heating. The versatility of green hydrogen makes it a valuable asset in the global energy transition. In transportation, hydrogen fuel cell vehicles offer zero-emission alternatives with longer driving ranges and shorter refueling times compared to battery electric vehicles. In industry, green hydrogen serves as a feedstock for ammonia production, steel manufacturing, and other processes, enabling decarbonization in hard-to-abate sectors. Moreover, hydrogen-based power generation provides grid-balancing services and energy storage solutions, facilitating the integration of renewable energy sources into the grid.

Despite its promising potential, the green hydrogen market faces several challenges. Cost competitiveness remains a significant barrier, although declining costs are making green hydrogen increasingly competitive with fossil fuel-derived hydrogen. Additionally, the lack of infrastructure, including production facilities, storage solutions, and distribution networks, hinders widespread adoption. Technological maturity, regulatory uncertainty, and the need for international collaboration further complicate market development.

Looking ahead, the outlook for the green hydrogen market is optimistic. Continued advancements in electrolysis technology, coupled with economies of scale and further integration of renewable energy sources, are expected to drive down production costs. Strategic partnerships, supportive policies, and market mechanisms will be crucial for unlocking investments, fostering innovation, and driving market growth. Moreover, the scaling up of green hydrogen production and deployment will open up new opportunities for developing countries, particularly those with limited access to local fuels and low-carbon resources. By addressing key barriers and leveraging opportunities for collaboration and innovation, the green hydrogen market can play a pivotal role in shaping a sustainable and resilient future for generations to come.

Green Hydrogen: Introduction

Green hydrogen heralded as a beacon of sustainable energy, represents a transformative pathway toward decarbonization and environmental stewardship. This revolutionary energy source is derived from renewable resources, predominantly wind and solar power, which drive the electrolysis process, splitting water molecules into hydrogen and oxygen. Unlike its counterparts, grey and blue hydrogen, green hydrogen stands out for its carbon-neutral footprint, offering a promising alternative to fossil fuels and a cornerstone of the global effort to mitigate climate change. At the forefront of green hydrogen production are advanced electrolysis technologies, each with distinct attributes shaping its adoption and scalability. Among these, the alkaline water (ALK) electrolysis process emerges as the foundational technology, boasting maturity and widespread utilization, commanding approximately 70% of the current market share. Its appeal lies in its cost-effectiveness and longevity, yet its reliance on continuous operation poses challenges amidst the intermittent nature of renewable energy sources. In contrast, the polymer electrolyte membrane (PEM) electrolysis presents a compelling alternative, leveraging its capability to operate intermittently and yield high-quality hydrogen. Despite its higher cost and lower production rates compared to ALK, PEM electrolysis has garnered favour among leading manufacturers and holds promise for applications demanding premium hydrogen output. Meanwhile, solid oxide electrolyzer cell (SOEC) technology, albeit in the research and development phase, offers a tantalizing glimpse into the future of green hydrogen production. With its potential for high efficiency and cost-effectiveness, SOEC presents an avenue for advancing the scalability and competitiveness of green hydrogen, albeit facing challenges such as extended startup times and component durability.

Source: (IRENA, 2020)

The projected demand for green hydrogen underscores its pivotal role in the global energy transition. Forecasts suggest a surge in demand, with estimates indicating a potential consumption of approximately 530 Mt by 2050. This surge is expected to displace a substantial portion of pre-pandemic global oil production, spanning diverse sectors including heating, transportation, power generation, chemicals, and primary steel manufacturing. Such a profound shift underscores the imperative for accelerating the development and deployment of green hydrogen technologies worldwide. In anticipation of burgeoning demand, countries worldwide are mobilizing efforts to capitalize on the green hydrogen opportunity. European and East Asian nations, characterized by significant energy consumption and dependence on imported fuel, are poised to emerge as key importers in the global green hydrogen market. Meanwhile, countries with abundant renewable resources, such as the Gulf Cooperation Council (GCC) nations, hold a strategic advantage in green hydrogen production, facilitated by their low-cost solar and wind resources. Competition intensifies as nations vie for leadership in this burgeoning industry, with countries like Australia, Canada, China, Germany, and the United States spearheading initiatives to bolster their domestic green hydrogen sectors.

Advancements in Hydrogen Technology Landscape: Driving Forces and Transformations

The landscape of hydrogen technology has undergone notable shifts, propelled by several factors that are shaping its emergence as a viable energy solution for the global transition toward sustainability. These pivotal changes are driving innovation, investment, and adoption across various sectors. Here are the transformative elements driving the evolution of hydrogen technology:

Heightened Urgency to Combat Climate Change: The urgency to address climate change has reached unprecedented levels globally. With a steadfast commitment to mitigate its effects, countries are intensifying their focus on implementing climate regulations. This concerted effort is compelling nations to seek out and support low-emission technologies capable of meeting their escalating energy demands. Consequently, there's a surge in funding from companies, governments, and investors toward overcoming historical barriers associated with hydrogen technologies.

Declining Renewable Energy Costs and the Need for Firming Solutions: The plummeting costs of renewable energy sources have transformed the energy landscape, narrowing the price gap between hydrogen derived from electrolysis and fossil fuels. Moreover, the inherent variability of renewable energy necessitates firming solutions to ensure a consistent energy supply. Hydrogen storage is emerging as a viable option to mitigate seasonal renewable energy variability, enhancing the utilization of renewables within national energy systems.

Technological Advancements in Hydrogen and Fuel Cell Technologies: Hydrogen and fuel cell technologies have witnessed remarkable progress in terms of efficiency, durability, reliability, and cost reduction. While further cost reductions are essential for global scalability, modern fuel cells have become notably cheaper, more durable, and more efficient compared to previous iterations. Consequently, there's a shift towards ramping up manufacturing capacity to meet increasing demand, thereby narrowing the price disparity between green hydrogen-powered fuel cells and fossil fuel alternatives.

Transition towards Electric Mobility Solutions: The transition towards electric mobility has spurred the development of enabling technologies that benefit hydrogen and fuel cells. These technologies are increasingly being utilized to provide zero-emission solutions for long-range applications such as trucks, trains, maritime shipping, and buses. With supportive policies and regulations promoting air quality, hydrogen, and fuel cells are poised to address pollution challenges in developing countries, potentially achieving significant cost reductions and scalability.

Challenges: Hindering Green Hydrogen Adoption

In the pursuit of a sustainable energy future, green hydrogen emerges as a promising solution, yet several barriers impede its widespread uptake. From production costs to infrastructure limitations, the journey towards mainstream adoption is fraught with challenges.

High Production Costs: The cost of producing green hydrogen remains a significant hurdle. In comparison to grey hydrogen, green hydrogen generated from electricity sourced from variable renewable energy (VRE) plants is estimated to be two to three times more expensive. Moreover, the adoption of green hydrogen technologies for end uses, such as fuel cell vehicles and synthetic aviation fuels, entails substantial additional costs, making them less economically viable alternatives to their fossil fuel counterparts.

Lack of Dedicated Infrastructure: The existing infrastructure for hydrogen transport and storage is inadequate. Unlike natural gas, which benefits from extensive transmission pipelines and refueling stations, hydrogen infrastructure is sparse, with only approximately 5000 kilometers of transmission pipelines and 470 refueling stations globally. The repurposing of natural gas infrastructure for hydrogen use offers a potential solution, yet such conversions are not universally feasible, posing a challenge to the expansion of green hydrogen infrastructure.

Energy Losses: Green hydrogen production incurs significant energy losses at each stage of the value chain. Approximately 30-35% of the energy used in electrolysis is lost, with additional losses occurring during conversion to other carriers like ammonia and during transportation. The use of hydrogen in fuel cells further compounds energy losses, resulting in an overall decrease in efficiency. Addressing these losses is crucial to improving the cost-effectiveness and sustainability of green hydrogen production.

Lack of Value Recognition: Despite its environmental benefits, green hydrogen lacks recognition in the market and regulatory frameworks. The absence of a dedicated green hydrogen market and standardized valuation methods hinders its differentiation from grey hydrogen. Moreover, the lack of targets or incentives to promote green products limits downstream demand for green hydrogen, exacerbating market challenges.

Need to Ensure Sustainability: Ensuring the sustainability of green hydrogen production is paramount. While direct connection to renewable energy plants guarantees green hydrogen production, reliance on grid electricity introduces uncertainties regarding the carbon emissions associated with fossil fuel-generated electricity. Balancing cost considerations with environmental sustainability remains a key challenge for green hydrogen producers, necessitating strategies to minimize emissions from grid-connected electrolyzers.

Green hydrogen holds immense promise as a clean energy solution and overcoming these barriers is essential for its widespread adoption and integration into the global energy landscape.

Green Hydrogen Market: Current Scenario

Despite its enormous potential, hydrogen production remains largely reliant on fossil fuels, with methods such as natural gas reforming and coal gasification comprising the predominant means of extraction, accounting for 96 to 99 percent of global hydrogen production. In contrast, hydrogen generation from electrolysis, utilizing electricity and water, contributes a mere 4 percent to the global supply. However, the tide is shifting as the demand for green hydrogen escalates, driving substantial cost reductions in electrolyzer equipment. Global water electrolysis deployments have witnessed a remarkable surge, with installed and committed capacity rising from a cumulative 32.7 megawatts (MW) between 2000 and 2013 to over 260 MW between 2014 and 2019. This momentum is further evidenced by significant scaling in electrolyzer orders, from notable 10 MW to 20 MW orders, and feasibility studies underway for a massive 250 MW capacity in the Netherlands and 12 gigawatts (GW) in Pilbara, Australia. Manufacturing capacity is keeping pace with this escalating demand, with commitments already exceeding 4.5 GW and a shift towards fully automated production lines. Consequently, cost declines have been substantial, with the estimated cost of PEM electrolyzers plummeting from over $2,400 per kilowatt (kW) in 2015 to under $1,100 per kW in 2019. Alkaline electrolysis costs have also seen a significant drop, falling below $500 per kW for orders exceeding 10 MW, with projections suggesting costs could dip below $300 per kW.

Simultaneously, the plummeting cost of renewable electricity is translating into lower production costs for green hydrogen. In markets where wholesale electricity prices fall below $45 per megawatt-hour (MWh), the production cost of green hydrogen ranges between $2.5 and $6.8 per kilogram (kg), making local green hydrogen production cost-competitive in isolated locations blessed with abundant renewable resources. The declining cost trend extends to fuel cells as well, with improved affordability, durability, and efficiency. The total capacity of fuel cells deployed worldwide surpasses 2 GW, with PEM and alkaline fuel cells reaching costs below $2,000 per kW and $700 per kW, respectively, and efficiencies exceeding 50 percent and 60 percent. These advancements are narrowing the price gap between electricity generated by fuel cells using green hydrogen and fossil fuel alternatives, fostering their adoption in various sectors such as transportation and energy access. Significant cost reductions could expand the market share of green hydrogen in the global industrial hydrogen market, which currently releases a staggering 830 million tonnes of carbon dioxide (CO2) annually, equivalent to the combined emissions of Indonesia and the United Kingdom. Thus, green hydrogen's potential to provide a zero-emission energy vector for the decarbonization of industrial feedstock underscores its pivotal role in shaping a sustainable future.

• The Development of Green Hydrogen in India

Achieve Cost Reduction to Less Than $2/kg

Presently, the production cost of green hydrogen in India stands at approximately $4–5/kg, twice the cost of grey hydrogen production. A significant portion of green hydrogen costs (50–70%) is attributed to the requirement of round-the-clock renewable electricity, with electrolyzer costs contributing the remaining 30–50%. To foster a robust green energy ecosystem in India, the target is to bring down the cost of green hydrogen to $2/kg, necessitating renewable energy costs below or equal to INR 2 (~$0.02)/kWh. Future cost offsets could stem from renewable energy incentives and tariffs, with renewable energy generation costs anticipated to decline further.

Minimize Costs Related to Conversion, Storage, and Transport

Beyond production costs, infrastructure demands such as conversion facilities, storage, and transportation could significantly impact the landed cost of green hydrogen. Minimizing infrastructure establishment costs is essential to reduce delivery expenses and bolster offtake. Short to medium-term strategies include developing green hydrogen production clusters for collaborative production and off-take, alongside long-term investments in infrastructure, including pipelines for nationwide hydrogen transport.

Support Industries Primed for Green Hydrogen Adoption

Certain industries, particularly existing grey hydrogen users and transportation sectors, are poised for green hydrogen adoption. Incentives and subsidies should be directed towards these sectors to stimulate domestic demand for green hydrogen. Long-term policy clarity, financial support for R&D, and the establishment of clear standards are crucial for fostering industry uptake.

Harness India’s Export Potential for Green Hydrogen Derivatives

India, with its low-cost renewable energy, skilled workforce, and ample land resources, holds significant potential to become a hub for green hydrogen derivative exports. To capitalize on this potential, globally recognized standards for export, improved export infrastructure, and bilateral agreements with import countries are essential.

Disincentivize Carbon-Intensive Alternatives

In addition to incentivizing green hydrogen adoption, stakeholders should consider disincentivizing carbon-intensive energy sources. Redirecting subsidies from high-emission sources towards green energy projects while maintaining energy affordability for citizens can make green energy economics more favorable. Implementing a comprehensive carbon tax regime could further support the transition to green energy.

In the last decade, India has witnessed a substantial decline in the costs associated with renewable energy generation. For instance, in 2010, the production cost of solar electricity in the country stood at approximately INR 11 (~$0.1)/kWh. By 2023, this cost had plummeted to INR 2.6 (~$0.03)/kWh. This remarkable reduction can be attributed to various interventions, including the implementation of demand-side mandates such as renewable power obligations (RPOs) and advancements toward establishing a nationalized and interconnected energy grid. To further drive down these costs to the targeted level of INR 2 (~$0.02)/kWh, stakeholders may need to implement strategies aimed at mitigating the capital expenditures associated with establishing renewable energy plants. Currently, capital expenditure constitutes at least 90% of the overall costs of wind and solar energy generation. Effective interventions to reduce capital costs could include initiatives like direct capital cost subsidies, exemptions from goods and services tax (GST), reduced fees for land acquisition, and waivers on stamp duties, among others. For example, granting GST exemptions on solar panels, which are presently taxed at 12%, could lead to a significant reduction in the cost of electricity generation, potentially lowering it by 10%. These measures are crucial for fostering a more conducive environment for the widespread adoption of renewable energy and achieving the targeted cost reduction objectives in the renewable energy sector in India.

Green Hydrogen Momentum in India: Key Market Updates

Conclusion

In conclusion, the green hydrogen market presents a promising pathway towards achieving carbon neutrality and mitigating climate change. With increasing commitments to limit global warming and transition to cleaner energy sources, green hydrogen emerges as a transformative technology with significant potential across various sectors. Despite facing challenges such as high production costs, infrastructure limitations, and regulatory uncertainties, the market is witnessing rapid growth and innovation driven by declining renewable energy costs and advancements in electrolysis technologies. Strategic partnerships, supportive policies, and international collaboration are essential for unlocking investments, fostering innovation, and driving market growth. Looking ahead, the green hydrogen market is poised for continued expansion, offering opportunities for sustainable development and decarbonization worldwide.

In the Indian context, the development of green hydrogen is crucial for achieving the country's renewable energy targets and addressing its carbon emissions. India has made significant strides in reducing the costs of renewable energy generation, paving the way for the widespread adoption of green hydrogen. By leveraging its abundant renewable resources and fostering a conducive policy environment, India can play a pivotal role in the global green hydrogen market. Strategic investments, technological advancements, and collaboration with key stakeholders will be essential for realizing India's potential as a hub for green hydrogen production and export. Additionally, targeted interventions to reduce capital costs and promote renewable energy adoption are necessary to drive down production costs and accelerate the transition towards a sustainable energy future in India.

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